Broker Dealer Commission Sharing Agreement

The situation has been clarified, according to a client media outlet of lawyers Larry E. Bergmann (ex-SEC) and Roger D. Blanc, of the law firm Willkie Farr-Gallager. Mr. Bermann and Mr. Blanc noted that SEC staff based their decision not to recommend enforcement action when a research provider receives payments of this type of “pool of funds” when the research provider was not a broker, based on the following conditions: In any event, monitoring of current accounts and auditing accounts for compensation are generally considered to be investment advice. However, the Commission rejected the view that any type of account monitoring must fall outside the “exclusively random” range of the broker and trader`s exclusion. 3. The research provider receives payment for its services through a pool of commissions previously agreed by the fund manager and the execution broker, should be set aside for research services; The purpose of the new interpretation is to confirm and clarify the Commission`s earlier interpretation of the concept of “incidental.” It reaffirms the SEC`s view that a broker`s “a]dvice does not need to be trivial, insignificant or rare” to be “incidental” to its securities activities. On the contrary, the advice of a broker and a trader is considered “incidental” when it is “provided in the context of the principal activity of the broker and the securities trader and has an appropriate connection with it,” determined on the basis of all the facts and circumstances related to the business activity, the services it offers and its relations with its clients.

Thus.B. a broker, whether serving institutional or private clients, could operate a strong research department and not be subject to the Consultants Act, as long as the dissemination of research reports was a means of obtaining the flow of orders from a sales and trading activity or if a commission-sharing agreement was entered into pursuant to Section 28 (e) of the Securities Exchange Act of 1934. , as amended (the “Stock Exchange Act”), as explained below. The Commission also stated that when a broker-dealer checks, in his own way and without the client`s consent, the account of a private client to decide whether to issue a recommendation and then responds to a recommendation, “the broker`s actions are related to the broker`s core business and are reasonably related to the main activity of the broker and trader. to carry out securities transactions. and that such activity would not increase in “account monitoring.” The Commission (in a footnote) was careful not to disrupt certain practices accepted in soft dollars, in accordance with Section 28 (e) of the Exchange Act. Section 28 (e) imposes a safe port for claims in the event of a breach of trust obligation when a discretionary fund manager uses client commissions (and perhaps “pays”) for brokerage and research services. Over the years, the Commission has interpreted point 28 e) in that they allow dependence on the safe haven when one broker provides eligible research services and another broker “influences” securities transactions that generate commissions used to purchase search results. [2] In this environment, the only transaction of a broker and a trader may be to produce and research under a commission-sharing agreement, in which he is paid for his research by a separate broker-dealer who executes or executes the trade.