SEC Approves FINRA Rule Allowing Transaction Based Compensation

The Securities and Exchange Commission (“SEC”) recently approved Rule 2040 proposed by the Financial Industry Regulatory Authority (“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.

Support for the determination of whether registration is required can be derived by 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 are ongoing. Member firms must maintain books and records supporting the determination.

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

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

For further information about transaction based compensation, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, FL, (561) 416-8956, or by email at [email protected].  This information is provided as a general or informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Going Public Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com