SEC Relaxes Principal Trading Rules, Temporarily
sponsored by:
The SEC threw a bone to the large brokerage firms today, easing principal trading restrictions on certain non-discretionary accounts that would have been affected by the recent court ruling on the broker/dealer exemption.
The regulator voted unanimously to offer such relief for two years on the accounts. Principal trading rules severely limit a firm’s ability to sell products from its own inventory and still maintain its fiduciary obligations.
“Today's decision by the SEC marks a victory for the investors who were forced by the courts to abandon certain investment accounts,” said Marc Lackritz, president and CEO of the Securities Industry and Financial Markets Association. “This decision provides important flexibility to these consumers and delivers increased consumer choice within the constraints set by the court.”
The decision gives the SEC time (read Rep’s previous story on the topic here) to examine the results of easing the rule and also the results of the RAND study—expected by year-end—that will examine regulation of the advisory and brokerage businesses, how they’ve changed, and the public’s understanding of both.
The new rule provides limited relief from the trade-by-trade prior consent requirements for principal trades executed with clients on a non-discretionary basis. The relief is available only to firms registered as both investment advisers under the Advisers Act and broker-dealers under the Securities Exchange Act of 1934 and would apply to any principal trade with a non-discretionary client that does not involve (a) a security issued by the dual registrant (or by an affiliate of the dual registrant), or (b) a transaction in which the dual registrant (or an affiliate of the dual registrant) acts as underwriter, other than offerings involving investment grade, debt securities.
