Adviser “client notice and consent” for principal trades and the impact of “real‐time” reporting

Abstract

Broker/dealers and investment managers that trade municipal securities on behalf of their clients are preparing for the shift from “end‐of‐the‐day batch” trade reporting to “real‐time” transaction reporting. In January 2005, the Municipal Securities Rulemaking Board (“MSRB”) will be initiating its Real‐time Transaction Reporting System (the “RTRS”). Amended MSRB Rule G‐14 now requires dealers to report transactions in municipal securities within 15 minutes of the time of trade execution, instead of by midnight on trade date. Rule G‐12(f) was amended to require municipal securities dealers to submit inter‐dealer transactions to the Central Comparison System within the same time frame. Investment advisers that engage in principal transactions with their clients or that are dually‐registered as, or affiliated with, broker/dealers that trade securities as principals on behalf of investment adviser clients generally must comply with the client notice and consent requirements set forth under Section 206(3) of the Investment Advisers Act of 1940 (the “Advisers Act”). In light of the acceleration of the MSRB’s trade reporting requirement, investment advisers should consider the extent to which these new requirements impact their obligation to notify clients of the fact that a principal trade is being processed and to secure each client’s approval prior to the completion of each transaction. At the very least, the implementation of the RTRS should prompt advisers to confirm, in fulfillment of their best execution obligations, that each broker/dealer that is executing their municipal securities trades complies with the new 15‐minute reporting window.

Citation

Cohen, L. (2005), "Adviser “client notice and consent” for principal trades and the impact of “real‐time” reporting", Journal of Investment Compliance, Vol. 5 No. 4, pp. 67-71. https://doi.org/10.1108/15285810410636587