Dodd-Frank.com

SEC Extends Temporary Rule Regarding Principal Trades with Certain Advisory Clients

By | December 28, 2010

Under Section 913 of the Dodd-Frank Act, the SEC is required to conduct a study, and provide a report to Congress, concerning the obligations of broker-dealers and investment advisers, including the standards of care applicable to those intermediaries and their associated persons.  The SEC intends to deliver the report concerning this study, as required by the Dodd-Frank Act, no later than January 21, 2011.

 Section 913 of the Dodd-Frank Act also authorizes the SEC to promulgate rules concerning, among other things, the legal or regulatory standards of care for broker-dealers, investment advisers, and persons associated with these intermediaries for providing personalized investment advice about securities to retail customers.  In enacting any rules pursuant to this authority, the SEC is required to consider the findings, conclusions, and recommendations of the mandated study.  The study and the SEC’s consideration of the need for further rulemaking pursuant to this authority are part of the SEC’s broader consideration of the regulatory requirements applicable to broker-dealers and investment advisers in connection with the Dodd-Frank Act.  In light of these legislative developments, the SEC proposed on December 1, 2010 to extend the date on which rule 206(3)-3T will sunset for a limited amount of time, from December 31, 2010 to December 31, 2012.

 The SEC has issued a final rule  amending rule 206(3)-3T only to extend the rule’s expiration date by two years.  Absent further action by the SEC, the rule will expire on December 31, 2012. The SEC stated it adopted this extension because it believes that firms’ compliance with the substantive provisions of rule 206(3)-3T provides sufficient protection to advisory clients to warrant the rule’s continued operation for the additional two years while it conducts the study mandated by Section 913 of the Dodd-Frank Act and consider more broadly the regulatory requirements applicable to broker-dealers and investment advisers.   As part of its broader consideration of the regulatory requirements applicable to broker-dealers and investment advisers, the SEC intends to carefully consider principal trading by advisers, including whether rule 206(3)-3T should be substantively modified, supplanted, or permitted to expire.

 The SEC expects to revisit the relief provided in rule 206(3)-3T soon after the completion of its study in January 2011.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

Contact Steve Quinlivan for more information.