NASD Issues Member Alert on Sales of Mutual Fund Shares and Dealer Agreements
Today, the NASD issued the attached Member Alert, which discusses a broker-dealer’s responsibilities with respect to sales of mutual fund shares and dealer agreements. In the Member Alert, the NASD reminded broker-dealers that fund sales must be consistent with the federal securities laws, disclosure provided to customers (including the fund prospectus), and any applicable dealer agreement. The NASD cautioned that a broker-dealer could violate Conduct Rule 2110 if it fails to comply with a provision of a dealer agreement, particularly if the failure results in financial harm to investors (e.g., a failure to comply with the agreement’s required procedures with respect to late trading and market timing). The NASD urged mutual fund underwriters and dealers to review their mutual fund dealer agreements to determine whether they adequately delineate the respective responsibilities of the parties in a manner reasonably designed to help ensure that the mutual fund sales and distribution process protects investors. The NASD also advised broker-dealers to implement appropriate procedures reasonably designed to ensure that they comply with their obligations under those agreements.