SEC Extends Temporary Rule Allowing Principal Trades by Investment Advisers Registered as Broker-Dealers

The US Securities and Exchange Commission has adopted amendments to delay the expiration date of Rule 206(3)-3T under the 1940 Investment Advisers Act. The temporary rule, which was supposed to expire on December 31, 2010, will now stay in effect until December 31, 2012.

Rule 206(3)-3T gives investment advisers that are also broker-dealers who are registered with the SEC another way to satisfy the Advisers Act’s Section 206(3) requirements when they work in a principal capacity with certain advisory clients. Section 206(3) does not allow investment advisers to effect or take part in a transaction for a client while acting either as broker for a person besides the client or as principal for its own account unless the client has been informed of the role that the adviser is playing and has given his or her consent. The SEC says it is completing its study on broker-dealers and investment advisers, per the Dodd-Frank Wall Street Reform and Consumer Protection Act mandate, and it will deliver the report to Congress by January 21.

Under Rule 206(3)-3T, an adviser is allowed to comply with Section 206(3) of the Advisers Act by, among other things:

• Providing written prospective disclosure about principal trade conflicts.
• Getting revocable written consent from the client that prospectively gives the adviser the authority to enter into principal transactions.
• Making certain written or oral disclosures and getting the client’s consent prior to each principal transaction.
• Sending the client confirmation statements that disclose that the adviser notified the client that it could act in a principal capacity and it has the client’s consent.
• Giving the client an annual report that itemizes the principal transactions.


Related Web Resources:

Advisers Act Rule 206(3)-3T (Temporary Rule Regarding Principal Trades with Certain Advisory Clients), SEC

The “New” SEC is Acting Just Like The “Old” SEC by Protecting the Securities Industry from Responsibility for its Actions, Stockbroker Fraud Blog, December 9, 2010

1940 Investment Advisers Act

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