Letters

FIMSAC Recommendations on ’40 Act Limitations

Summary

SIFMA sent comments to the Securities and Exchange Commission to adopt the two recommendations of the Municipal Securities Transparency Subcommittee of the Fixed Income Market Structure Advisory Committee (“FIMSAC”) to consider a rule(s) that permits a broker-dealer to engage in certain principal transactions with advisory clients while meeting the requirements of section 206(3) of the Investment Advisers Act of 1940.

Although exemptive relief may be available on an individual basis currently, we believe that a permanent, transparent rule would be more widely utilized to the benefit of investors.

PDF

Submitted To

SEC

Submitted By

SIFMA

Committee

Municipal Securities Committee

Date

9

January

2020

Excerpt

The Honorable Jay Clayton, Chairman
U.S. Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090

Re:  FIMSAC Recommendations Regarding Certain Principal Trades with Advisory Accounts

Dear Chairman Clayton,

The Securities Industry and Financial Markets Association (“SIFMA”)1 writes to request that the Securities and Exchange Commission (“Commission”) adopt the two recommendations
of the Municipal Securities Transparency Subcommittee (the “Municipal Subcommittee” or “Subcommittee”) of the Fixed Income Market Structure Advisory Committee (“FIMSAC”) to
consider a rule(s) that permits a broker-dealer to engage in certain principal transactions with advisory clients while meeting the requirements of section 206(3) of the Investment Advisers
Act of 1940 (the “Advisers Act”).
2 Although exemptive relief may be available on an individual basis currently, we believe that a permanent, transparent rule would be more widely utilized to
the benefit of investors.

Background

Previously, the Commission had a temporary rule, Rule 206(3)-3T under the Advisers Act, that permitted advisers who were also registered as broker-dealers and who offered nondiscretionary advisory accounts to engage in certain principal transactions with their advisory customers without requiring transaction-by-transaction, written disclosure and consent required by Section 206(3) of the Advisers Act. The rule – whose purpose was to permit conflicted principal transactions when certain securities could not be obtained, or obtained on a favorable basis, for the client – was initially adopted in 2007 and extended several times until it sunsetted in December 2016. The Commission allowed it to sunset after finding that few firms relied on it.3 At this time, the Commission suggested that individual exemptive relief could nevertheless be obtained.4 SIFMA advocated for the rule to be permanently extended and reported that our members would have utilized a permanent rule.5

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