Sales Activities - FINRA Conduct Rule 2830


Investment Company Securities
Rule 2830 applies exclusively to members in connection with their activities regarding investment company securities. Important definitions under this rule include:

  • Compensation refers to both cash and non-cash compensation.

  • Cash compensation refers to any discount, concession, fee, service fee, commission, asset-based sales charge, loan, override or cash employee benefit received in connection with the sale and distribution of investment company securities.

  • Non-cash compensation refers to any form of compensation received in connection with the sale and distribution of investment company securities that is not cash compensation, including but not limited to merchandise, gifts and prizes, travel expenses, meals, and lodging.

  • Sales charges refer to all charges or fees that are paid to finance sales or sales promotion expenses, including front-end, deferred and asset-based sales charges, excluding charges and fees for ministerial, recordkeeping or administrative activities and investment management fees.

  • Affiliated member refers to any member that, directly or indirectly, controls, is controlled by, or is under common control with a non-member company.

  • Offeror refers to an investment company, an adviser to an investment company, a fund administrator, an underwriter and any affiliated person (as defined in Section 2(a)(3) of the 1940 Act) of such entities.

Be sure to be familiar with the following under Rule 2830:

Dealer Concessions
No member who is an underwriter of the securities of an investment company can sell such a security to any dealer or broker at any price other than a public offering price unless such sale is in conformance with Rule 2420, or a sales agreement (which sets forth the concessions to be received by the dealer or broker) is in effect between the parties as of the date of the transaction.

Sales Charges
Members may not sell shares of any investment company if the sales charges described in the prospectus are excessive. Aggregate sales charges are deemed excessive for investment companies that don't have asset-based sales charges if they don't allow breakpoints (discounts on large volume purchases). Furthermore, aggregate sales charges may not exceed 8.5%. However, if specific breakpoint discounts are not met, the maximum aggregate sales charge may be as low as 7.25%.

For investment companies that do have an asset-based sales charge, the maximum aggregate sales charge is 6.25% if a service charge is also imposed, or 7.25% if no service charge is imposed.

Refund of Sales Charges
If any security issued by an open-end management investment company is repurchased by the issuer, or is tendered for redemption within seven business days after the date of the transaction, (1) the member shall refund to the underwriter the full concession allowed to the dealer or broker on the original sale and (2) the underwriter shall pay to the issuer the underwriter's share of the sales charge on the original sale by the underwriter and shall also pay to the issuer the refund when he receives it.

Selling Dividends
No member shall, in recommending the purchase of investment company securities, state or imply that the purchase of such securities shortly before an ex-dividend date is advantageous to the purchaser, unless there are specific, clearly described tax or other advantages to the purchaser, and no member shall represent that distributions of long-term capital gains by an investment company are or should be viewed as part of the income yield from an investment in such company's securities.

Withhold Orders
No member shall withhold placing customers' orders for any investment company security so as to profit himself as a result of such withholding.

Member Compensation
No associated person of a member shall accept any compensation from anyone other than the member with which the person is associated. This requirement will not prohibit arrangements where a non-member company pays compensation directly to associated persons of the member, as long as:

  • The arrangement is agreed to by the member;

  • The member relies on an appropriate rule, regulation, interpretive release, interpretive letter, or "no-action" letter issued by the Commission that applies to the specific fact situation of the arrangement;

  • The receipt by associated persons of such compensation is treated as compensation received by the member for purposes of the Rules of the Association; and

  • All recordkeeping requirements are satisfied. Members are required to maintain records of all compensation received by the member or its associated persons from offerors. The records shall include the names of the offerors, the names of the associated persons, the amount of cash, the nature and, if known, the value of non-cash compensation received.

No member or person associated with a member shall accept any compensation from an offeror which is in the form of securities of any kind. Also, a member may not directly or indirectly accept any compensation or offer any compensation other than as described in the prospectus, except under the following conditions:

  • An occasional meal, event ticket or other entertainment that is not preconditioned on achievement of a sales goal, and is not excessive or frequent enough to appear improper

  • Payment or reimbursement of expenses to attend training or educational meetings offered by a member or offeror

  • Gifts that do not exceed an annual amount fixed periodically by the FINRA and that are not preconditioned on the achievement of a sales goal
Execution of Portfolio Transactions


Related Articles
  1. Fundamental Analysis

    Apple Stock: An Earnings Case Study (AAPL)

    Discover an earnings case study on Apple, and learn about its EPS and revenue growth rates, and what analysts are projecting for Apple in 2016 and 2017.
  2. Investing

    The Difference Between Book and Market Value

    Book value is the price paid for an asset. It never changes as long as the asset is owned. Market value is the current price at which the asset can sell.
  3. Term

    What Is Contractionary Policy?

    A contractionary policy is a macroeconomic tool used to slow down an economy.
  4. Term

    What Is Corporate Inversion?

    Corporate inversion occurs when a U.S. company buys or combines with a foreign company in a country with a lower corporate tax rate.
  5. Investing News

    Comcast Acquires Dreamworks Animation for $3.8B (DWA, CMCSA)

    A quick look at what Comcast owns!
  6. Savings

    The Difference Between Compounding Interest and Simple Interest

    Interest is the cost a borrower pays to use someone else’s money. Interest can be either simple or compounded.
  7. Term

    What Is Stockholders' Equity?

    Stockholders’ equity represents the equity that shareholders own in a company.
  8. Investing

    Original Star Wars Trilogy Returning to Theatres in August

    The oldest three Star Wars movies return to the big screen in August in a special program called "Return of the Trilogy".
  9. Insurance

    Dear God, Please Pay My Hospital Bill

    As health insurance costs under Obamacare rise, some consumers are turning to health care sharing ministries. Here's how they work and what you risk.
  10. Savings

    Get a More Comfortable Seat in Coach for Less

    Try these four strategies to get a better seat in economy class the next time you fly.
RELATED TERMS
  1. Bunny Market

    Bunny market describes a stock market that does not have an obvious ...
  2. Davos Man/Davos Woman

    Davos man/Davos woman refers to the members of the World Economic ...
  3. File and Suspend

    File and suspend is a Social Security claim strategy that allows ...
  4. Form 1095-B

    An IRS Form sent to individuals who received minimum essential ...
  5. Form 1095-A

    An IRS form sent to anybody who received health insurance coverage ...
  6. Kurtosis

    A statistical measure used to describe the distribution of observed ...
RELATED FAQS
  1. Is a money market account the same as a money market fund?

    Discover the differences between money market accounts and money market funds, including minimum balance requirements, withdrawal ... Read Answer >>
  2. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ... Read Answer >>
  3. What typically comprises a money market fund?

    Learn about the basic types of money market funds and discover how they are characterized by the types of investments that ... Read Answer >>
  4. How can I budget for both short-term expenses and long-term goals?

    The first step in planning for long-term goals is actually determining how much you spend on short-term expenses. Once you ... Read Answer >>
  5. What are common advantages of investing in large cap stocks?

    Learn what large-cap stocks are and how investors can benefit from common advantages of adding large-cap stocks to their ... Read Answer >>
  6. How old should you be to get life insurance?

    There's really no pre-determined age when it suddenly becomes necessary to take out a life insurance policy. However, if ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center