FINRA Rule Related to Transaction Based Compensation Fee Has Been Approved

Posted on April 22nd, 2015 at 11:34 AM
FINRA Rule Related to Transaction Based Compensation Fee Has Been Approved

From the Desk of Jim Eccleston at Eccleston Law LLC:

The SEC recently approved Rule 2040 proposed by FINRA which applies to the payment of transaction based compensation to unregistered persons by member firms.  Rule 2040 will allow member firms to pay fees, concessions, discounts, commissions or other allowances to unregistered persons if the member firm determines the unregistered person’s activities do not require registration as a broker-dealer.

Transaction based compensation is one of the primary factors used in determining whether an activity constitutes unregistered broker-dealer activity.

Support for the determination of whether registration is required can be derived by, among other things, reasonably relying on previously published releases, no-action letters or SEC staff interpretations, seeking a no-action letter from the SEC or obtaining a legal opinion from an independent, securities attorney.

A member firm’s determination must be reasonable under the circumstances and should be reviewed from time to time. FINRA suggested the review be done annually, if transaction based compensation is paid to unregistered persons is ongoing. Member firms must maintain books and records supporting the determination.

FINRA Rule 2040 will become effective on August 24, 2015.

The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston

Tags: FINRA, SEC, Rule 2040

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