DRAFT ICI COMMENT LETTER ON NASD CASH COMPENSATION DISCLOSURE PROPOSAL; OCTOBER 9TH CONFERENCE CALL

[16596] October 1, 2003 TO: CLOSED-END INVESTMENT COMPANY COMMITTEE No. 50-03 SEC RULES COMMITTEE No. 77-03 UNIT INVESTMENT TRUST COMMITTEE No. 18-03 RE: DRAFT ICI COMMENT LETTER ON NASD CASH COMPENSATION DISCLOSURE PROPOSAL; OCTOBER 9TH CONFERENCE CALL As previously indicated, NASD recently proposed amendments to Rule 2830 to require point-of-sale disclosure of revenue sharing and differential cash compensation arrangements relating to the sale of investment company securities.1 Based on comments received during our September 24th conference call on the proposal, we have prepared a draft comment letter. The draft letter is briefly summarized below. We will hold a conference call on Thursday, October 9th at 2:30 p.m. Eastern time to discuss comments on the draft letter. The dial-in information for the call is as follows: Dial-in number: 888-625-1617 Pass code: Cash Compensation/Frances Stadler Please send an email to Monica Carter-Johnson at mcarter@ici.org to let us know if you plan to participate on the call. If you are unable to participate on the call and have comments on the draft letter, please contact me at 202/326-5822 or frances@ici.org before the call. The draft letter expresses support for NASD’s proposal overall but provides comments on various specific aspects of it. In particular, the draft letter: • recommends that NASD clarify that broker-dealers may provide generic disclosure about the types of revenue sharing payments they receive and are not required to describe each payment by each offeror; • recommends that NASD clarify the timing requirements for determining which revenue sharing payments must be disclosed, when they must be disclosed, and how frequently 1 See Institute Memorandum to Closed-End Investment Company Committee No. 48-03, SEC Rules Committee No. 75-03 and Unit Investment Trust Committee No. 17-03 [16564], dated September 18, 2003. 2 the disclosure must be updated; • recommends that NASD clarify that revenue sharing payments by all offerors in connection with the sale or distribution of funds in a single fund complex should be aggregated for purposes of the required list and that the list should identify the sponsor/primary adviser of those funds, rather than each offeror; • expresses agreement with NASD’s decision not to propose requiring disclosure of the actual dollar amounts of cash compensation payments made to broker-dealer firms because it is not necessary in order to accomplish the goals of the proposal; • supports the concept of a de minimis threshold below which disclosure of revenue sharing payments would not be required and suggests (in brackets, pending further member input on this point) that this threshold be one percent or less of the aggregate cash compensation payments received by a broker-dealer during the relevant period; • recommends that NASD revise the proposed requirements for when disclosure of differential cash compensation arrangements would have to be made; • opposes expanding the definition of “differential cash compensation” to include circumstances where a registered representative receives identical payout ratios for the sale of different funds but the sale of one results in higher compensation because the gross dealer concession is greater in absolute dollars; • supports the application of similar requirements to other products that involve revenue sharing or differential cash compensation arrangements; and • recommends deleting the existing cash compensation prospectus disclosure requirement in Rule 2830. Frances M. Stadler Deputy Senior Counsel Attachment (in .pdf format)