SEC Extends For Two Years Principal Trading Rule For Non-Discretionary Accounts

Thursday, January 03, 2013 09:01
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SEC Extends For Two Years Principal Trading Rule For Non-Discretionary Accounts

Tags: fiduciaries | fiduciary standard | sec

A controversial rule that allows brokers to trade as principals in non-discretionary advisory accounts has been extended by the SEC for another two years.
 
The rule was adopted in 2007 and was designed to allow principal trading in accounts that had been converted to fee-based compensation.

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This happened after the so-called Merrill Lynch was thrown out by a federal court. The Merrill Lynch rule exempted brokers from the Investment Act of 1940.
 
The rule has been extended twice before and a five-year extension was pushed for in comment letters from SIFMA (Securities Industry and Financial Markets Association) and FSI (Financial
Services Institute) the SEC received last month.
 
fi360, the fiduciary firm, said the extension should only be for six months. It said the SEC has no idea how many firms use the exemption, how many problems arise from principal trading, and the possible costs those problems are incurring for investors.
 
The SEC said that ADV data showed that 10 firms engage in principal trading and that those firms have a total of 3.5 million non-discretionary accounts in which principal trading may be involved.

Comments (4)

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brentb843
Lisa - a little disheartening that it took ya'll so long to report this. You should include what this means for clients of advisors who are in fee based accounts at wirehouses, IBDs, and many TAMPs.
brentb843 , January 04, 2013
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lisagray
Thanks for your comment, Brent. I believe the comment period that began in October just ended and the rule was extended officially just a few days ago. The rule was to sunset December 31.

Good suggestion about application and will expand on that in a post for Monday.
lisagray , January 04, 2013
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brentb843
brentb843 , January 07, 2013
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lisagray
Yes, and effective December 18 and would have sunset December 31.
lisagray , January 07, 2013

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