Please be advised that the opinions expressed in this letter are those of the staff and have not been reviewed or endorsed by the NASD Regulation Board of Directors. I hope this letter is responsive to your inquiry. However, Rule 2740 would not be applicable to the arrangements you have described because the 12B-1 fees are not paid 'in connection with the sale of securities which are part of a fixed price offering.' 1 Rule 2740 generally prohibits members from granting concessions, discounts or rebates to anyone other than a broker-dealer in connection with a fixed price offering. We also note that in other contexts, the NASD has rules that prohibit rebating of fees or commissions to customers. So long as the Plan does not operate as an unregistered broker/dealer, the described arrangement would not violate NASD Rule 2420. Therefore, you should consult with the SEC’s Division of Market Regulation, Office of Chief Counsel, if you have any question as to whether the Plan should be registered. Generally, NASD Regulation does not consider it appropriate to conclude that a particular arrangement would not violate Rule 2420 unless the non-member entity has obtained a no-action letter from the SEC staff indicating that the entity is not required to register as a broker/dealer. The determination of whether an entity should be registered as a broker-dealer rests with the SEC. This rule has been interpreted by NASD Regulation to prohibit such payments to entities that operate (or based on the proposed activities, would operate) as unregistered broker/dealers. NASD Rule 2420 generally prohibits payment of fees and commissions to non-member broker/dealers. The rebated funds might also be allocated to the accounts of Plan participants based on one of several formulas. The rebated funds will be invested in either equity or bond mutual funds and used to defray expenses incurred by the Plan, including administrative expenses and investment advisory fees. Further, the broker/dealer will rebate a portion of the 12b-1 fees and commissions it receives to an account opened in the name of the Plan. Those fees and commissions will be based on amounts invested by Plan participants at the net asset value of the various available mutual funds in the Plan. The plan is administered by a broker/dealer that will receive payment of fees and commissions pursuant to Rule 12b-1 under the Investment Company Act of 1940. However, we cannot determine whether the arrangement might violate Rule 2420, absent a no-action letter from the Securities and Exchange Commission ('SEC') addressing whether the recipient of the fees is required to register as a broker/dealer.īased on your letter and our conversation of February 6, 2001, I understand the facts to be as follows:Īn employer implements a qualified retirement plan ('the Plan') that allows employees to invest in certain mutual funds. Based on the facts as you have described them below, the staff does not believe the arrangements violate Rule 2740. Musick may also be known as or be related to Musick, Musick Peeler & Garrett and Musick Peeler & Garrett LLP.This responds to your letter of January 22, 2001, in which you seek confirmation that certain mutual fund fee payment arrangements do not violate NASD rules, specifically NASD Rules 24. The data presented on this page does not represent the view of Musick and its employees or that of Zippia. None of the information on this page has been provided or approved by Musick.

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