* See Memorandum to Closed-End Investment Company Committee No. 34-97, SEC Rules Committee
No. 92-97 and Unit Investment Trust Committee No. 58-97, dated September 26, 1997.
[9350]
October 20, 1997
TO: CLOSED-END INVESTMENT COMPANY COMMITTEE No. 38-97
SEC RULES COMMITTEE No. 102-97
UNIT INVESTMENT TRUST COMMITTEE No. 61-97
RE: ICI COMMENT LETTER ON NASD REGULATION OF CASH COMPENSATION
ARRANGEMENTS
______________________________________________________________________________
Attached is a copy of the Institutes comment letter to NASD Regulation, Inc. on
regulation of incentive-based cash compensation paid in connection with sales of mutual fund
shares. The letter is substantially similar to the draft that we recently circulated to you.* It has
been revised in certain minor respects to incorporate members comments.
The letter states that NASDR should continue to regulate cash compensation paid to
broker-dealer firms (as opposed to payments to individual registered representatives) through
written disclosure requirements. More specifically, it suggests that: (1) fund prospectuses
should be required to include general disclosure about cash compensation arrangements; and
(2) broker-dealer firms should be required to provide general written disclosure about cash
compensation arrangements to investors before or when they purchase fund shares. The letter
states that these disclosures should be required whenever a broker-dealer firm that sells a
funds shares may receive compensation from the fund (e.g., through 12b-1 fees), its adviser,
underwriter, administrator or their affiliates. It also recommends that payments to such broker-
dealers for administrative services be covered.
Frances M. Stadler
Associate Counsel
Attachment (in .pdf format)