Broker Dealer Commission Sharing Agreement

08 Apr Broker Dealer Commission Sharing Agreement

While the measures adopted by the SEC on June 5 are primarily aimed at protecting retail investors, the new interpretation has implications for all brokers, including those that serve only institutional investors. The proposed 2040 rule opens with the general principle that no member or related company may, directly or indirectly, pay compensation to an unregistered or unregistered company or person if the receipt of such compensation would result in the recipient being subject to the registration requirements set out in the stock exchange law. In the proposed regulation, FINRA specifies that it is the SEC, not FINRA or other self-regulatory organizations, that is responsible for defining the behaviour that understugs the registration requirements of the Brokers Act. The SEC has repeatedly pointed out that obtaining compensation based on transactions related to the purchase or sale of securities most likely means that the beneficiary must be registered as a broker-dealer. Therefore, the sharing of commissions or the payment of transfer fees, which are calculated as a percentage of the compensation based on the broker`s transactions, are prohibited in almost all cases. On the other hand, compensation that is clearly not based on transactions would be allowed, for example. B hourly consulting fees paid to an IT consultant. The second exception would allow commissions to be paid to retired account managers or registered representatives (“representatives”). This exception is intended to encourage outgoing representatives to change activities to other company representatives.

Under this exception, a retired representative may continue to participate in commissions and other remunerations generated by the accounts he or she has served within the company, even after the representative has left and refuses to be admitted as an associate. In order to qualify for this waiver, the representative must enter into a contract with the member company, which provides for the payment of the pension, before retirement. Once retired, the retired representative cannot request new stores, cannot open new accounts or serve existing accounts. However, the SEC`s response caused some confusion, as the letter in the absence of measures made it clear that the Commission saw no problem if non-broker traders were paid through commission-sharing arrangements as long as these agreements fall under certain Goldman Sachs guidelines. Unfortunately, the circumstance outlined by Goldman Sachs seemed more appropriate for client commission agreements and not for commission agreements. How do regulators and administrators want to stop the explosion of this commission? Goldman`s letter to the SEC clearly sought to determine whether the research providers participating in their Research XPRESS platform had to be registered brokers for clients to order Goldman Sachs to pay them from a pool of customer commissions.