Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, May 16, 2011

FINRA Proposes Changes to Rule on Investment Company Securities

FINRA recently filed a proposed rule change with the SEC FINRA to adopt NASD Rule 2830 (Investment Company Securities) as FINRA Rule 2341 (Investment Company Securities) with significant changes. NASD Rule 2830 regulates members’ activities in connection with the sale and distribution of securities of companies registered under the Investment Company Act of 1940 (“investment company securities”)and limits the sales charges members may receive, prohibits directed brokerage arrangements, limits the payment and receipt of cash and non-cash compensation, sets conditions on discounts to dealers, and addresses other issues such as members’ purchases and sales of investment company securities as principal.

Proposed FINRA Rule 2341 would revise the provisions of NASD Rule 2830 in four areas. First, Rule 2341 would require a member to make new disclosures to investors regarding its receipt of or its entering into an arrangement to receive, cash compensation. Second, Rule 2341 would make a minor change to the recordkeepingrequirements for non-cash compensation. Third, Rule 2341 would eliminate a condition regarding discounted sales of investment company securities to dealers. Fourth, Rule
2341 would codify past FINRA staff interpretations regarding the purchases and sales of
exchange-traded funds (“ETFs”).

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