SEC Extends Temporary Rule Regarding Principal Trades with Certain Advisory Clients (Fed. Reg.)
Commentary by Steven Lofchie
The SEC extended the date on which Investment Advisers Act Rule 206(3)-3T will sunset from December 31, 2014 to December 31, 2016.
Rule 206(3)-3T is a temporary rule that establishes an alternative means for investment advisers that are registered with the SEC as broker-dealers to meet the requirements of Advisers Act Section 206(3) ("Prohibited Transactions by Investment Advisers") when they act in a principal capacity in transactions with their nondiscretionary advisory clients.
According to the SEC, the rule's sunset date was extended by two years in order to give the SEC more time to consider issues raised by principal trading, including trading conducted under Rule 206(3)-3T, as part of the SEC's broader consideration of the regulatory requirements applicable to broker-dealers and investment advisers.
See: 79 FR 76880.
Related news: SIFMA Submits Comments to SEC on Extending the Sunset Date of Advisers Act Temporary Rule (September 17, 2014); SEC Proposes Extension to Temporary Rule Regarding Principal Trades with Certain Advisory Clients Published in Federal Register (August 15, 2014); SEC Proposes to Extend Temporary Rule Regarding Principal Trades with Certain Advisory Clients (August 12, 2014).
Commentary
Firms should be mindful that principal trades with advisory clients continue to be an area of focus for SEC examination and enforcement actions. Specifically, the SEC's adopting release (the "Release") noted that "the staff has examined and will continue to examine firms that engage in principal transactions and will take appropriate action to help ensure that firms are complying with section 206(3) or rule 206(3)-3T (as applicable), including possible enforcement action." The Release also cited a number of recent enforcement actions against firms for their failure to comply with the requirements governing principal trades with advisory clients.