IRS Issues Guidance Limiting Tax Benefits Associated With Asset-Based Fees

PDF version   On May 25, 2007, the Internal Revenue Service (IRS) issued guidance regarding the tax treatment of fees paid in accounts that charge flat percentage fees instead of transaction-based commissions. Under the IRS guidance, investors must treat the flat fees as miscellaneous itemized deductions and may not include such fees in the basis of the securities held in the account. The practical effect of this guidance may be to limit the tax benefits that investors in accounts that charge asset-based fees may claim in connection with the flat fees associated with such accounts.

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SEC Grants Industrywide Relief from Confirmation Disclosure and Delivery Requirements

PDF version   On May 24, 2007, for the second time in less than four weeks, the SEC granted an industrywide exemption relief from the confirmation delivery requirements of Rule 10b-10 under the Securities Exchange Act of 1934 to all dually registered broker-dealers and investment advisers (Dual Registrants) offering wrap-fee programs in which the Dual Registrant acts as fiduciary in managing its clients’ accounts on a discretionary basis (Programs). [1] The exemption permits Dual Registrants to omit from periodic statements sent to Program clients in lieu of trade-by-trade confirmations information that previously could be omitted from periodic statements sent to Program clients where the investment adviser is a separate legal entity from the broker-dealer sponsor of the wrap-fee-program (BD Sponsor). In addition, the SEC staff granted industrywide no-action relief, permitting BD Sponsors to obtain the consent of Program clients to receive periodic statements in lieu of trade-by-trade confirmations without obtaining a separate signature, provided specified conditions are met.

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SEC Proposes Several Significant Changes to Offering and Reporting Rules

PDF version   At its public meeting on May 23, 2007, the Securities and Exchange Commission announced several far-reaching proposals that, if adopted, would simplify private placements and resales of unregistered securities, make short-form registration statements (i.e., Forms S-3 and F-3) more readily available, simplify reporting for smaller companies, and give guidance on compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal controls.

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SEC Files with D.C. Circuit to Seek Four-Month Stay of Implementation of Fee-Based Brokerage Ruling

PDF version   On May 14, 2007, the SEC announced that it filed a motion with the D.C. Circuit to stay, for 120 days, its ruling vacating Rule 202(a)(11)-1. Absent the stay, the court’s mandate would have issued in the next seven days and, in any event, by May 21, 2007. Even if the court does not grant the SEC’s request, the order will remain stayed until the court acts on the SEC’s motion. >>> continued

NASD Announces Move to Electronic Processing of New Membership Applications for Broker-Dealers

PDF version   Recently, the NASD issued Notice to Members (NTM) 07-20 regarding electronic filing of new membership applications. Specifically, NTM 07-20 states that, effective May 31, 2007, recently approved amendments to the NASD Rules 1012 and 1013 will require new member applicants to electronically complete and submit new membership applications by using online Form NMA and the Electronic Filing System (EFS). NTM 07-20 further indicates that new member applicants may begin voluntarily using online Form NMA and EFS for electronic completion and submission of new membership applications on May 7, 2007. >>> continued

SEC Grants Industrywide Exemption from Confirmation Delivery Requirements for Internally Managed, Discrectionary Programs

PDF version   On April 30, 2007, the SEC granted an industrywide exemption from the confirmation delivery requirements of Rule 10b-10 under the Securities Exchange Act of 1934 to all dually registered broker-dealers and investment advisers (Dual Registrants) offering programs in which the Dual Registrant acts as a fiduciary in managing its clients’ accounts on a discretionary basis (Programs). [1] The exemption followed a 2005 clarification to the scope of industrywide relief granted to the Money Management Institute and the Securities Industry Association (now the Securities Industry and Financial Markets Association) in 1999. [2]

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