Regulatory Compliance E-newsletter - December
Posted On 12/7/2015 2:54:00 PM
Feature of the Month
Annual Tasks are automated with NRS ComplianceGuardianTM
It's that time of year. Gathering the annual holdings statements from your access persons and reviewing against all of the transaction data is an arduous, time-consuming and error-prone task that can be easily automated. Collecting the information and painstakingly reviewing with the required quarterly transaction statements and the firm's trade restrictions as well as the rules set forth in the firm's code of ethics can take a significant amount of your time.
NRS ComplianceGuardianTM now offers a Personal Securities Trading module which allows your firm to integrate trading rules, restricted lists, and pre-clearance requests that automate trading approvals and denials. Now, those within your firm can generate annual holdings reports and quarterly transaction reports along with an attestation for recordkeeping purposes. Register for a demonstration to see how the PST module can:
- Automate Trade Preclearance and Exceptions
- Automate Reporting for Annual Holdings, Quarterly Transaction and Initial Holdings
- Attestations and Automated Archiving
- Create and Manage Multiple Restricted Lists Simultaneously
- Manage Heightened Supervision Individuals Easily
Contact NRS or sign up for a demo today.
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Reduce Fund Expenses and Preserve Shareholder Value
Blue Sky Solution™ Transactional Exemption Module restores the transparency to omnibus accounts. It gives control back to the Fund by applying user configured rules to existing Data Share Activity and Position data to generate daily sales reporting feeds to a bluesky reporting system. The data provides account and transaction details necessary for the rules to systematically identify and filter out transactions eligible for exemption while reporting all required transactions. The benefit of these exemptions would otherwise be lost through omnibus reporting. This solution reduces costs through the apportionment of appropriate fees allowing for tighter blue sky reporting controls which result in preservation of shareholder value.
The Transactional Exemption Module:
- Reduces fund expenses and preserves shareholder value by maximizing recognition of transactional exemptions to reduce Mutual Fund sales based notice filing fees
- Enables fund companies and third party administrators to identify investor purchases that are exempt from blue sky reporting
- Allows a fund to repurpose existing data used in compliance monitoring against frequent trading by investors, to be used for compliance with blue sky regulations which cover the offer and sale of securities in a particular state
- Enables users to set up rules that systematically identify eligibility forthe range of states’ exemptions
- Can be implemented for some or all Broker-Dealer omnibus feeds of a fund complex over a period of time, it does not require an “all or nothing” approach to implementation
- Eliminates the need for time-consuming, manual research of large trades by systematically identifying transactions in accounts that areeligible as sales to “institutional investors”
- Is a valuable add-on to NRS’s Blue Sky Solution or NRS’s Blue Sky Administration services
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NRS Education is Ready for the New Year
From professional development programs and web-based seminars to investment adviser symposia, NRS provides a comprehensive selection of practical compliance education options designed to train and enlighten staff at investment adviser, investment company and broker-dealer firms. Review the NRS Education 2016 Calendar for education options that fit your needs and schedule.
NRS Education events are designed to meet criteria for continuing education credits for CPA/accountants, compliance professionals, attorneys, certified final planners and other financial services professionals.
In today’s fast-changing regulatory environment, the need to educate staff at every level is paramount to successfully incorporating compliance into your firm's daily business operations and minimizing your firm's risk.
Education On-Site and In-Person:
Directed Compliance Education Programs:
Unlimited Flexibility for Learning Your Way:
Save the Date for the 31st Annual NRS Conferences:
We are always eager to hear about the specialized topics and forms of content delivery that you and your firm need to stay current, so please keep the suggestions coming.
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NASD Rule 2340 and FINRA Rule 2310 amendments will take effect in 2016
Effective April 11, 2016, amendments to NASD Rule 2340 and FINRA Rule 2310 will take effect. Amendments to NASD Rule 2340 (Customer Account Statements) modify the requirements relating to the inclusion of per share estimated values for direct participation program (DPP) and unlisted real estate investment trust (REIT) securities on account statements. FINRA Rule 2310 (Direct Participation Programs) make corresponding changes to the requirements applicable to members’ participation in public offerings of DPP or REIT securities.
NASD Rule 2340 currently requires a general securities member to include on account statements an estimated value of a DPP or REIT security from the annual report, an independent valuation service or any other source, unless the member can demonstrate the estimated value is inaccurate. FINRA Rule 2310 provides that a member may not participate in a DPP or REIT offering unless the general partner or sponsor will disclose a per share estimated value in each annual report.
As stated in Regulatory Notice 15-02, “The general industry practice is to use the offering price (or “par value”) of DPP and REIT securities as the per share estimated value during the offering period, which can continue as long as seven and one-half years. The offering price, typically $10 per share, often remains constant on customer account statements during this period even though various costs and fees have reduced investors’ principal and underlying assets may have decreased in value.”
The rule amendments require FINRA member firms to provide more accurate per share estimated values on customer account statements, shorten the time period before a valuation is determined based on an appraisal and provide various important disclosures.
NASD Rule 2340 generally requires that firms provide periodic account statements to customers, on at least a quarterly basis, containing a description of any securities positions, money balances or account activity since the last statement. Paragraph (c) addresses the inclusion of per share estimated values for DPP and REIT securities held in customer accounts or included on customer account statements. The rule also provides for several disclosures regarding the illiquidity and resale value of DPP and REIT securities. The amendments require, among other things, that firms include in customer account statements a per share estimated value for a DPP or REIT security developed in a manner reasonably designed to ensure that the per share estimated value is reliable.
In addition, the amended rule provides two methodologies for calculating the per share estimated value for a DPP or REIT security that is deemed to have been developed in a manner reasonably designed to ensure that it is reliable: (1) the net investment methodology and (2) the appraised value methodology. The amended rule also imposes various enhanced disclosure obligations, as discussed in Regulatory Notice 15-02.
In addition, the amended rule clarifies that when an issuer provides a range of amounts available for investment, the broker-dealer may use the maximum offering percentage unless the firm has reason to believe that such percentage is unreliable, in which case the firm must use the minimum offering percentage.
Regulatory Notice 15-02 and the amended rules should be read carefully, in their entirety to ensure that the rule amendments and their regulatory requirements are clearly understood and that appropriate supervisory policies and procedures in in effect on April 11, 2016.
For additional information about how we can help you wrap up 2015 and get 2016 off on the right foot compliance-wise, contact us today.
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