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No-Action Relief from Pay-to-Play Recordkeeping Requirement

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  • Baker, John
    The staff of the Securities and Exchange Commission has provided conditional no-action relief from a recordkeeping requirement for the pay-to-play rule.
    Message 1 of 1 , Sep 13, 2011
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      The staff of the Securities and Exchange Commission has provided conditional no-action relief from a recordkeeping requirement for the pay-to-play rule. Investment Company Institute, No-Action Letter (Sept. 12, 2011). In connection with the pay-to-play rule, Rule 206(4)-5 under the Investment Advisers Act of 1940, Rule 204-2(a)(18)(i)(B) under the Advisers Act generally requires a registered investment adviser to maintain a record of all government entities that are or were investors in a registered investment company or other covered investment pool to which the adviser provides or has provided advisory services in the past five years (but not prior to September 13, 2010). In practice, investment advisers may not know the identity of all the government entities that invest in a covered investment pool through omnibus accounts held by intermediaries.

      The no-action letter approves an alternative method for investment advisers to satisfy their recordkeeping obligations, without piercing their omnibus accounts or seeking information from their omnibus accountholders. An adviser relying on the no-action letter must maintain a list that includes:

      * Each government entity that invests in a covered investment pool whose account can reasonably be identified as being held in the name of or for the benefit of such government entity on the records of the covered investment pool or its transfer agent;

      * Each government entity whose account was identified as that of a government entity - at or around the time of the initial investment - to the adviser or one of its client servicing employees, regulated persons or covered associates;

      * Each government entity that sponsors or establishes a 529 plan and has selected a specific covered investment pool as an option to be offered by such 529 plan; and

      * Each government entity that has been solicited to invest in a covered investment pool either (i) by a covered associate or regulated person of the adviser; or (ii) by an intermediary or affiliate of the covered investment pool if a covered associate, regulated person, or client servicing employee of the adviser participated in or was involved in such solicitation, regardless of whether such government entity invested in the covered investment pool.


      The SEC has not yet posted the letter, so I have posted the request and response on the FundLaw website (free registration with Yahoo Groups may be required) at

      http://groups.yahoo.com/group/FundLaw/files/ICIPaytoPlayNALRequest.pdf

      and

      http://groups.yahoo.com/group/FundLaw/files/ICIPaytoPlayNALResponse.pdf

      For my post on the adoption of the pay-to-play rule, see

      http://groups.yahoo.com/group/FundLaw/message/1282

      The pay-to-play compliance date for advisers to registered investment companies, including the related recordkeeping rule, is today, September 13, 2011. Today originally was also the compliance date for the third-party solicitor provisions of the rule. In June, however, the SEC extended the third-party solicitor compliance date to June 13, 2012, at the same time that it modified the rule to reflect changes made by the Dodd-Frank Act. Release No. IA-3221 (June 22, 2011). The SEC release is available online at

      http://www.sec.gov/rules/final/2011/ia-3221fr.pdf




      John M. Baker <JMB@...>
      Stradley Ronon Stevens & Young, LLP http://www.stradley.com
      1250 Connecticut Avenue, NW, Suite 500
      Washington, DC 20036
      202.419.8413
      202.822.0140 fax
      FundLaw Listowner http://groups.yahoo.com/group/fundlaw
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