FINRA has withdrawn previously proposed rules that would have altered its rules governing disclosures made by brokers and dealers selling mutual fund shares. In short, the new rules would have changed the disclosure requirements for cash compensation to FINRA member broker-dealers who sell mutual fund shares, generally requiring that these disclosures be made by the broker-dealer, rather than in the fund's prospectus or SAI.
As proposed, FINRA Rule 2341 would have revised the provisions of NASD Rule 2830 in four areas:
- require a FINRA member to make new disclosures to investors regarding its receipt of or its entering into an arrangement to receive, cash compensation.
- make a minor change to the recordkeeping requirements for non-cash compensation.
- eliminate a condition regarding discounted sales of investment company securities to dealers.
- codify past FINRA staff interpretations regarding the purchases and sales of exchange-traded funds ("ETFs").
Had the proposal not been withdrawn, under the new rule, FINRA member receiving additional cash compensation, including sub-administrative and/or sub-transfer agency fees, then the member would have been required by the rule to disclose in a prominent way that:
- it receives (or is party to an arrangement to receive) additional cash compensation,
- the additional cash compensation may influence the selection of funds that the member and its associated persons offer or recommend, and
- additional information is available at a specified web page or toll-free number. The web page or toll-free telephone number must provide:
A narrative description of the additional cash compensation received from offerors, or to be received pursuant to an arrangement entered into with an offeror, and any services provided, or to be provided, by the member to the offeror or its affiliates for this additional cash compensation; If applicable, a narrative description of any preferred list of investment companies to be recommended to customers that the member has adopted as a result of the receipt of additional cash compensation, including the names of the investment companies on this list; and the names of the offerors that have paid, or entered into an arrangement with the member to pay, this additional cash compensation to the member.
The SEC notice is for the original rule proposal is available online at http://www.sec.gov/rules/sro/finra/2011/34-64386.pdf
FINRA's page for the rule filing, including the full text of the proposed rule change, is available at http://www.finra.org/Industry/Regulation/RuleFilings/2011/P123528
For FINRA Regulatory Notice 09-34 and the comments on that version of the proposal, see http://www.finra.org/Industry/Regulation/Notices/2009/P119014
The notice of withdrawal of the proposal may be found at: http://www.finra.org/web/groups/industry/@ip/@reg/@rulfil/documents/rulefilings/p124082.pd