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

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