NASD Notice to Members 05-04 - January 2005

SEC Approves Amendments to NASD Rule 2830(k) to Strengthen Prohibitions on Investment Company Directed Brokerage Arrangements; Effective Date: February 14, 2005

Executive Summary

On December 20, 2004, the Securities and Exchange Commission (SEC) approved amendments to NASD Rule 2830(k), which governs NASD members’ execution of investment company portfoliotransactions. The amended rule augments existing proscriptions on directed brokerage practices by prohibiting a member from selling the shares of, or acting as an underwriter for, any investment company if the member knows or has reason to know that the investment company or its investment adviser or underwriter have directed brokerage arrangements in place that are intended to promote the sale of investment company securities. The amendments also eliminate an existing provision in the rule that permits a member, subject to certain conditions, to sell or underwrite the shares of an investment company that follows a policy of considering fund sales in determining whether to send portfolio transactions to a broker-dealer. The effective date of this rule change is February 14, 2005. Included with this Notice is Attachment A (text of rule amendments).

 

Questions or comments concerning this Notice may be directed to Joseph P. Savage, Counsel, Investment Companies Regulation, Regulatory Policy and Oversight (RPO), at (240) 386-4534, or Philip A. Shaikun, Associate General Counsel, RPO, at (202) 728-8451.