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SEC Extends Compliance Date for "Pay to Play" Ban on Third Party-Solicitation

Securities Alert | June 11, 2012
by: Neil P. Casey

On June 8, 2012, the Securities and Exchange Commission (SEC) issued a release extending the deadline by which SEC-registered investment advisers must comply with the third-party solicitation ban imposed by Rule 206(4)-5 under the Investment Advisers Act of 1940, as amended (the so-called Pay to Play Rule). The deadline has now been reset to nine months following the compliance date of the SEC’s final rules for the registration of municipal advisors, which were initially proposed in December 2010 but have yet to be adopted. Once the SEC has adopted the final municipal advisor registration rules, it will issue a notice in the Federal Register specifying the new compliance deadline for the third-party solicitation ban.

Under the Pay to Play Rule, an SEC-registered investment adviser and certain of its executives and employees are prohibited from directly or indirectly paying any third party for the solicitation of advisory business from any government entity unless that solicitor is itself an SEC-registered investment adviser, broker-dealer or municipal advisor (a new classification of SEC registrant created by the Dodd-Frank Act). Additionally, in the case of a broker-dealer or municipal advisor, the Rule provides that the solicitor must be subject to pay to play restrictions to be adopted by the Financial Industry Regulatory Authority (FINRA) or Municipal Securities Rulemaking Board (MSRB), which the SEC has determined are substantially similar to, or more stringent than, the restrictions imposed by the SEC Pay to Play Rule. The SEC refers to these requirements as the “third-party solicitation ban” of the Pay to Play Rule.

The SEC stated that it was extending the compliance date of the third-party solicitation ban in order to allow for an orderly transition by advisors and solicitors once the SEC’s municipal advisor registration rules have been finalized, as well as an opportunity for solicitors to assess new compliance obligations under pay to play rules that may be adopted by FINRA and the MSRB. The SEC release (No. IA-3418) can be found here.

For more information regarding this alert, please contact Neil Casey (212.631.4414; caseyn@whiteandwilliams.com) in our New York office. 

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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