Alert December 29, 2009

SEC Adopts Final Rule on Certain Principal Transactions for Advisers with December 31, 2010 Sunset Provision

The SEC issued a release adopting as final Rule 206(3)-3T under the Investment Advisers Act of 1940.  Rule 206(3)-3T was adopted as a temporary rule in 2007 following a decision by the Court of Appeals for the District of Columbia Circuit that struck down an SEC rule addressing the application of the Advisers Act to certain activities of broker-dealers (see the April 10, 2007 Alert for a discussion of this decision).  The Rule is designed to enable a dually registered broker-dealer’s nondiscretionary customers that have converted their current fee-based brokerage accounts to fee-based advisory accounts to have continued access to securities available on a principal basis from the firm without requiring the firm to comply with the strict terms of Section 206(3)’s disclosure and consent requirements.  The only change the SEC has made in making the Rule final is to extend its expiration date from December 31, 2009 to December 31, 2010.  The SEC staff has posted a Small Entity Compliance Guide that summarizes and explains the Rule.