NASD Notice to Members 04-26 - March 2004

NASD Reminds Members of Their Duty to Ensure Proper Application of Discounts in Sales Charges to Sales of Unit Investment Trusts (UITs)

Executive Summary

Unit Investment Trusts (UITs) that charge initial sales charges sometimes offer discounts in the sales charge based on the dollar amount or number of units of the investment. The thresholds at which the discounts are offered in the sale of UITs generally are called price breaks, and are substantially similar to breakpoint discounts in the sale of mutual fund shares. Because breakpoint discounts are widespread in the sale of front-load Class A mutual funds, NASD recently has taken a number of steps to ensure that members understand, inform customers about, and correctly apply breakpoint discounts in the sale of mutual fund shares. The purpose of this Notice is to remind members that the same duties extend to the sale of UITs that offer price breaks, and that they should develop and implement the same type of procedures for ensuring the proper application of such discounts in connection with the sale of UITs as they have in connection with the sale of mutual funds.

 

Questions or comments concerning this Notice may be directed to Marc Menchel, Executive Vice President and General Counsel, Regulatory Policy and Oversight, at (202) 728-8071.