* See Memorandum to Closed-End Investment Company Committee No. 29-97 and Unit Investment Trust
Committee No. 52-97, dated August 15, 1997; Memorandum to SEC Rules Members No. 60-97, dated August 15, 1997.
[9280]
September 26, 1997
TO: CLOSED-END INVESTMENT COMPANY COMMITTEE No. 34-97
SEC RULES COMMITTEE No. 92-97
UNIT INVESTMENT TRUST COMMITTEE No. 58-97
RE: DRAFT COMMENT LETTER ON NASD REGULATION OF CASH
COMPENSATION
______________________________________________________________________________
As we previously advised you, NASD Regulation, Inc. recently solicited comments on
how it should regulate the payment and receipt of cash compensation incentives for the sale
and distribution of investment company securities.* Attached for your review is a draft
comment letter setting forth the Institutes response.
The draft letter recommends that NASDR continue to regulate cash compensation paid
to broker-dealer firms (as opposed to payments to individual registered representatives)
through written disclosure requirements. It suggests that existing requirements be enhanced in
certain respects to provide more effective disclosure to investors. More specifically, the letter
states that: (1) fund prospectuses should be required to include general disclosure about cash
compensation arrangements; and (2) broker-dealers should be required to provide general
written disclosure about cash compensation arrangements to investors before they purchase
fund shares (e.g., in account application forms). The draft letter states that these disclosures
should be required whenever the broker-dealer firm may receive compensation from the fund
(e.g., through 12b-1 fees), its adviser, underwriter, administrator or their affiliate. It also
recommends that payments to broker-dealers for administrative services be covered.
Comments must be filed with NASDR by October 15th. If you have comments on
the attached draft letter, please call me at (202) 326-5822 by Tuesday, October 7th.
Frances M. Stadler
Associate Counsel
Attachment (in .pdf format)