83 FR 5148 - Janney Montgomery Scott LLC; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 24 (February 5, 2018)

Page Range		5148-5151
FR Document		2018-02168
Federal Register, Volume 83 Issue 24 (Monday, February 5, 2018)
[Federal Register Volume 83, Number 24 (Monday, February 5, 2018)]
[Notices]
[Pages 5148-5151]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-02168]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Advisers Act Release No. 4850; File No. 803-00243]


Janney Montgomery Scott LLC; Notice of Application

January 30, 2018.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  Notice of application for an exemptive order under section 
206A of the Investment Advisers Act of 1940 (``Advisers Act'') 
providing an exemption from the written disclosure and consent 
requirements of section 206(3).

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Applicant:  Janney Montgomery Scott LLC (``Applicant'').

Relevant Advisers Act Sections:  Exemption requested under section 206A 
from the written disclosure and consent requirements of section 206(3).

Summary of Application:  The Applicant requests that the Commission 
issue an order under section 206A exempting it and Future Advisers (as 
defined below) from the written disclosure and consent requirements of 
section 206(3) with respect to principal transactions with 
nondiscretionary advisory client accounts.

Filing Dates:  The application was filed on November 22, 2017.

Hearing or Notification of Hearing:  An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving the Applicant with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on February 26, 2018, and should be accompanied 
by proof of service on the Applicant, in the form of an affidavit or, 
for lawyers, a certificate of service. Pursuant to rule 0-5 under the 
Advisers Act, hearing requests should state the nature of the writer's 
interest, any facts bearing upon the desirability of a hearing on the 
matter, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE, Washington, DC 20549-1090. Applicant, c/o Laura E. Flores 
and Monica L. Parry, Morgan, Lewis & Bockius LLP, 1111 Pennsylvania 
Ave. NW, Washington, DC 20004.

FOR FURTHER INFORMATION CONTACT:  Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Robert Shapiro, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION:  The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website at http://www.sec.gov/rules/iareleases.shtml or by 
calling (202) 551-8090.
    The Applicant seeks relief from the written disclosure and consent

[[Page 5149]]

requirements of section 206(3) of the Advisers Act that would be 
similar to relief provided by Advisers Act rule 206(3)-3T (the 
``Rule''), which expired by its terms on December 31, 2016. The relief 
sought by the Applicant, if granted, would be subject to conditions 
similar to those under the Rule, as well as certain revised or 
additional conditions.

Applicant's Representations

    1. The Applicant is registered as an investment adviser with the 
Commission and is a registered broker-dealer. The Applicant offers the 
Partners Advisory Program (the ``Program''), a nondiscretionary 
advisory program.
    2. The Applicant established the Program in 1999. Prior to December 
31, 2016, the Applicant relied on the Rule to engage in principal 
transactions with its clients in the Program.
    3. As of December 31, 2016, the Applicant had a total of 23,428 
client accounts enrolled in the Program with aggregate assets of 
$7,318,704,000. On the same date, 1,491 client accounts had consented 
to principal transactions in their Program accounts in reliance on the 
Rule. In 2016, 4,527 trades were effected in reliance on the Rule in 
the Program. Approximately 90 percent of the trades done in reliance on 
the Rule in this period were purchases by client accounts; the average 
purchase was approximately $29,228. Approximately 10 percent of the 
trades done in reliance on the Rule in this period were sales from 
client accounts; the average sale was approximately $30,011.
    4. The Applicant acknowledges that the Order, if granted, would not 
be construed as relieving in any way the Applicant from acting in the 
best interests of an advisory client, including fulfilling the duty to 
seek the best execution for the particular transaction for the advisory 
client; nor shall it relieve the Applicant from any obligation that may 
be imposed by sections 206(1) or (2) of the Advisers Act or by other 
applicable provisions of the federal securities laws or applicable 
Financial Industry Regulatory Authority (``FINRA'') rules.

Applicant's Legal Analysis

    1. Section 206(3) provides that it is unlawful for any investment 
adviser, directly or indirectly, acting as principal for its own 
account, knowingly to sell any security to or purchase any security 
from a client, without disclosing to the client in writing before the 
completion of the transaction the capacity in which the adviser is 
acting and obtaining the client's consent to the transaction. The Rule 
deemed an investment adviser to be in compliance with the provisions of 
section 206(3) of the Advisers Act when the investment adviser, or a 
person controlling, controlled by, or under common control with the 
investment adviser, acting as principal for its own account, sold to or 
purchased from an advisory client any security, provided that the 
investment adviser complied with the conditions of the Rule.
    2. The Rule required, among other things, that the investment 
adviser obtain a client's written, revocable consent prospectively 
authorizing the adviser, directly or indirectly, acting as principal 
for its own account, to sell any security to or purchase any security 
from the client. The consent was required to be obtained after the 
adviser provided the client with written disclosure about: (i) The 
circumstances under which the investment adviser may engage in 
principal transactions with the client; (ii) the nature and 
significance of the conflicts the investment adviser has with its 
client's interests as a result of those transactions; and (iii) how the 
investment adviser addresses those conflicts. The investment adviser 
also was required to provide trade-by-trade disclosure to the client, 
before the execution of each principal transaction, of the capacity in 
which the adviser may act with respect to the transaction, and obtain 
the client's consent (which may be written or oral) to the transaction. 
The Rule was available only to an investment adviser that was also a 
broker-dealer registered under section 15 of the Securities Exchange 
Act of 1934 (``Exchange Act'') and could only be relied upon with 
respect to a nondiscretionary account that was a brokerage account 
subject to the Exchange Act, and the rules thereunder, and the rules of 
the self-regulatory organization(s) of which it is a member. The Rule 
was not available for principal transactions if the investment adviser 
or a person who controlled, was controlled by, or was under common 
control with the adviser (``control person'') was the issuer or an 
underwriter of the security (except that an investment adviser could 
rely on the Rule for trades in which the investment adviser or a 
control person was an underwriter of non-convertible investment-grade 
debt securities).
    3. The Rule also required the investment adviser to provide to the 
client a trade confirmation that, in addition to the requirements of 
rule 10b-10 under the Exchange Act, included a conspicuous, plain 
English statement informing the client that the investment adviser 
disclosed to the client before the execution of the transaction that 
the investment adviser may act as principal in connection with the 
transaction, that the client authorized the transaction, and that the 
investment adviser sold the security to or bought the security from the 
client for its own account. The investment adviser also was required to 
deliver to the client, at least annually, a written statement listing 
all transactions that were executed in the account in reliance on the 
Rule, including the date and price of each transaction.
    4. The Rule expired on December 31, 2016. Absent the requested 
relief, the Applicant would be required to provide trade-by-trade 
written disclosure to each nondiscretionary advisory client with whom 
the Applicant sought to engage in a principal transaction in accordance 
with section 206(3). The Applicant submits that its nondiscretionary 
clients have had access to the Applicant's inventory through principal 
transactions with the Applicant for a number of years, and expect to 
continue to have such access in the future. The Applicant believes that 
engaging in principal transactions with its clients provides certain 
benefits to its clients, including access to securities of limited 
availability, such as municipal bonds, and that the written disclosure 
and client consent requirements of section 206(3) act as an operational 
barrier to its ability to engage in principal trades with its clients, 
especially when the transaction involves securities of limited 
availability.
    5. Unless the Applicant is provided an exemption from the written 
disclosure and client consent requirements of section 206(3), the 
Applicant believes that it will be unable to provide the same range of 
services and access to the same types of securities to its 
nondiscretionary advisory clients as it was able to provide to its 
clients under the Rule.
    6. The Applicant notes that, if the requested relief is granted, it 
will remain subject to the fiduciary duties that are generally 
enforceable under sections 206(1) and 206(2) of the Advisers Act, 
which, in general terms, require the Applicant to: (i) Disclose 
material facts about the advisory relationship to its clients; (ii) 
treat each client fairly; and (iii) act only in the best interests of 
its client, disclosing conflicts of interest when present and obtaining 
client consent to arrangements that present such conflicts.
    7. The Applicant further notes that, in its capacity as a broker-
dealer with respect to these accounts, it will remain subject to a 
comprehensive set of Commission and FINRA regulations that apply to the 
relationship between a broker-dealer and its customer in

[[Page 5150]]

addition to the fiduciary duties an adviser owes a client. These rules 
require, among other things, that the Applicant deal fairly with its 
customers, seek to obtain best execution of customer orders, and make 
only suitable recommendations. These obligations are designed to 
promote business conduct that protects customers from abusive practices 
that may not necessarily be fraudulent, and to protect against unfair 
prices and excessive commissions. Specifically, these provisions, among 
other things, require that the prices charged by the Applicant be 
reasonably related to the prevailing market, and limit the commissions 
and mark-ups the Applicant can charge. Additionally, these obligations 
require that the Applicant have a reasonable basis to believe that a 
recommended transaction or investment strategy involving a security or 
securities is suitable for the customer, based on information obtained 
through reasonable diligence.
    8. The Applicant requests that the Commission issue an Order 
pursuant to section 206A exempting it from the written disclosure and 
consent requirements of section 206(3) only with respect to client 
accounts in the Program and any similar nondiscretionary program to be 
created in the future. The Applicant also requests that the 
Commission's Order apply to future investment advisers controlling, 
controlled by, or under common control with the Applicant (``Future 
Advisers''). Any Future Adviser relying on any Order granted pursuant 
to the application will comply with the terms and conditions stated in 
the application.\1\
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    \1\ All entities that currently intend to rely on any order 
granted pursuant to the application are named as Applicants.
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Applicant's Conditions

    The Applicant agrees that any Order granting the requested relief 
will be subject to the following conditions:
    1. The Applicant will exercise no ``investment discretion'' (as 
such term is defined in section 3(a)(35) of the Exchange Act), except 
investment discretion granted by the advisory client on a temporary or 
limited basis,\2\ with respect to the client's account.
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    \2\ Discretion is considered to be temporary or limited for 
purposes of this condition when the investment adviser is given 
discretion: (i) As to the price at which or the time to execute an 
order given by a client for the purchase or sale of a definite 
amount or quantity of a specified security; (ii) on an isolated or 
infrequent basis, to purchase or sell a security or type of security 
when a client is unavailable for a limited period of time not to 
exceed a few months; (iii) as to cash management, such as to 
exchange a position in a money market fund for another money market 
fund or cash equivalent; (iv) to purchase or sell securities to 
satisfy margin requirements; (v) to sell specific bonds and purchase 
similar bonds in order to permit a client to take a tax loss on the 
original position; (vi) to purchase a bond with a specified credit 
rating and maturity; and (vii) to purchase or sell a security or 
type of security limited by specific parameters established by the 
client. See, e.g., Temporary Rule Regarding Principal Trades with 
Certain Advisory Clients, Investment Advisers Act Release No. 2653 
(Sept. 24, 2007) at n. 31.
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    2. The Applicant will not trade in reliance on this Order any 
security for which the Applicant or any person controlling, controlled 
by, or under common control with the Applicant is the issuer, or, at 
the time of the sale, an underwriter (as defined in section 202(a)(20) 
of the Advisers Act).
    3. The Applicant will not directly or indirectly require the client 
to consent to principal trading as a condition to opening or 
maintaining an account with the Applicant.
    4. The advisory client has executed a written revocable consent 
prospectively authorizing the Applicant directly or indirectly to act 
as principal for its own account in selling any security to or 
purchasing any security from the advisory client. The advisory client's 
written consent must be obtained through a signature or other positive 
manifestation of consent that is separate from or in addition to the 
signature indicating the client's consent to the advisory agreement. 
The separate or additional signature line or alternative means of 
expressing consent must be preceded immediately by prominent, plain 
English disclosure containing either: (a) An explanation of: (i) The 
circumstances under which the Applicant directly or indirectly may 
engage in principal transactions; (ii) the nature and significance of 
conflicts with its client's interests as a result of the transactions; 
and (iii) how the Applicant addresses those conflicts; or (b) a 
statement explaining that the client is consenting to principal 
transactions, followed by a cross-reference to a specific document 
provided to the client containing the disclosure in (a)(i)-(iii) above 
and to the specific page or pages on which such disclosure is located; 
provided, however, that if the Applicant requires time to modify its 
electronic systems to provide the specific page cross-reference 
required by clause (b), the Applicant may, while updating such 
electronic systems, and for no more than 90 days from the date of the 
Order, instead provide a cross-reference to a specific document 
provided to the client containing the disclosure in (a)(i)-(iii) above 
and to the specific section in such document in which such disclosure 
is located.
    Transition provision: To the extent that the Applicant obtained 
fully informed written revocable consent from an advisory client for 
purposes of rule 206(3)-3T(a)(3) prior to January 1, 2017, the 
Applicant may rely on this Order with respect to such client without 
obtaining additional prospective consent from such client.
    5. The Applicant, prior to the execution of each transaction in 
reliance on this Order, will: (a) Inform the advisory client, orally or 
in writing, of the capacity in which it may act with respect to such 
transaction; and (b) obtain consent from the advisory client, orally or 
in writing, to act as principal for its own account with respect to 
such transaction.
    6. The Applicant will send a written confirmation at or before 
completion of each such transaction that includes, in addition to the 
information required by rule 10b-10 under the Exchange Act, a 
conspicuous, plain English statement informing the advisory client that 
the Applicant: (a) Disclosed to the client prior to the execution of 
the transaction that the Applicant may be acting in a principal 
capacity in connection with the transaction and the client authorized 
the transaction; and (b) sold the security to, or bought the security 
from, the client for its own account.
    7. The Applicant will send to the client, no less frequently than 
annually, written disclosure containing a list of all transactions that 
were executed in the client's account in reliance upon this Order, and 
the date and price of each such transaction.
    8. The Applicant is a broker-dealer registered under section 15 of 
the Exchange Act and each account for which the Applicant relies on 
this Order is a brokerage account subject to the Exchange Act, and the 
rules thereunder, and the rules of the self-regulatory organization(s) 
of which it is a member.
    9. Each written disclosure required as a condition to this Order 
will include a conspicuous, plain English statement that the client may 
revoke the written consent referred to in Condition 4 above without 
penalty at any time by written notice to the Applicant in accordance 
with reasonable procedures established by the Applicant, but in all 
cases such revocation must be given effect within 5 business days of 
the Applicant's receipt thereof.
    10. The Applicant will maintain records sufficient to enable 
verification of compliance with the conditions of this Order. Such 
records will include, without limitation: (a) Documentation sufficient 
to demonstrate compliance with each disclosure and consent requirement 
under this Order; (b) in particular, documentation sufficient to 
demonstrate that, prior to the execution

[[Page 5151]]

of each transaction in reliance on this Order, the Applicant informed 
the relevant advisory client of the capacity in which the Applicant may 
act with respect to the transaction and that it received the advisory 
client's consent (if the Applicant informs the client orally of the 
capacity in which it may act with respect to such transaction or 
obtains oral consent, such records may, for example, include recordings 
of telephone conversations or contemporaneous written notations); and 
(c) documentation sufficient to enable assessment of compliance by the 
Applicant with sections 206(1) and (2) of the Advisers Act in 
connection with its reliance on this Order.\3\ In each case, such 
records will be maintained and preserved in an easily accessible place 
for a period of not less than five years, the first two years in an 
appropriate office of the Applicant, and be available for inspection by 
the staff of the Commission.
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    \3\ For example, under sections 206(1) and (2), an investment 
adviser may not engage in any transaction on a principal basis with 
a client that is not consistent with the best interests of the 
client or that subrogates the client's interests to the interests of 
the investment adviser. Cf. Investment Advisers Act Release No. 2106 
(Jan. 31, 2003) (adopting Rule 206(4)-6).
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    11. The Applicant will adopt written compliance policies and 
procedures reasonably designed to ensure, and the Applicant's chief 
compliance officer will monitor, the Applicant's compliance with the 
conditions of this Order. The Applicant's chief compliance officer 
will, on at least a quarterly basis, conduct testing reasonably 
sufficient to verify such compliance. Such written policies and 
procedures, monitoring and testing will address, without limitation: 
(a) Compliance by the Applicant with its disclosure and consent 
requirements under this Order; (b) the integrity and operation of 
electronic systems employed by the Applicant in connection with its 
reliance on this Order; (c) compliance by the Applicant with its 
recordkeeping obligations under this Order; and (d) whether there is 
any evidence of the Applicant engaging in ``dumping'' in connection 
with its reliance on this Order.\4\ The Applicant's chief compliance 
officer will document the frequency and results of such monitoring and 
testing, and the Applicant will maintain and preserve such 
documentation in an easily accessible place for a period of not less 
than five years, the first two years in an appropriate office of the 
Applicant, and be available for inspection by the staff of the 
Commission.
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    \4\ See Report of the Securities and Exchange Commission, 
Investment Trusts and Investment Companies, H.R. Doc. No. 279, 76th 
Cong., 2d Sess., pt. 3, at 2581, 2589 (1939); Hearings on S. 3580 
Before a Subcommittee of the Commission on Banking and Currency, 
76th Cong., 3d Sess. 209, 212-23 (1940); Hearings on S. 3580 Before 
the Subcomm. of the Comm. on Banking and Currency, 76th Cong., 3d 
Sess. 322 (1940).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02168 Filed 2-2-18; 8:45 am]
 BILLING CODE 8011-01-P
5148 Federal Register / Vol. 83, No. 24 / Monday, February 5, 2018 / Notices

U.S.C. 6622 to direct the National role can public-private partnerships the Investment Advisers Act of 1940
Science and Technology Council play, and how should they be structured (‘‘Advisers Act’’) providing an
(NSTC) to develop and update, in for maximum impact? exemption from the written disclosure
coordination with the National 3. What innovative tools, platforms, and consent requirements of section
Economic Council, a strategic plan to technologies are needed for advances in 206(3).
improve government coordination and manufacturing? Of those that already
provide long-term guidance for Federal exist, what are the barriers to their APPLICANT: Janney Montgomery Scott
programs and activities in support of adoption? LLC (‘‘Applicant’’).
United States manufacturing 4. How can such Federal agencies and RELEVANT ADVISERS ACT SECTIONS:
competitiveness, including advanced centers develop and strengthen all Exemption requested under section
manufacturing research and levels of manufacturing education and 206A from the written disclosure and
development (R&D). Pursuant to this training programs to ensure an consent requirements of section 206(3).
requirement, NSTC seeks to develop a adequate, well-trained U.S. workforce SUMMARY OF APPLICATION: The
National Strategic Plan for Advanced for the new advanced manufacturing Applicant requests that the Commission
Manufacturing (‘‘Plan’’) that will create jobs of the future? issue an order under section 206A
jobs, grow the economy across multiple 5. How can such Federal agencies and exempting it and Future Advisers (as
industrial sectors, strengthen national centers assist small and medium-sized defined below) from the written
security, and improve healthcare. manufacturers in developing and disclosure and consent requirements of
Advanced manufacturing refers to a implementing new products and section 206(3) with respect to principal
family of activities relating to the use processes? transactions with nondiscretionary
and coordination of information, 6. How would you assess the state of advisory client accounts.
automation, computation, software, the following factors and how they FILING DATES: The application was filed
sensing, networking, and impact innovation and competitiveness on November 22, 2017.
interoperability to manufacture existing for United States advanced HEARING OR NOTIFICATION OF HEARING:
products in new ways, or to manufacturing? An order granting the requested relief
manufacture new products emerging (a) technology transfer and will be issued unless the Commission
from the use of new technologies. commercialization activities; orders a hearing. Interested persons may
NSTC has commenced the (b) the adequacy of the national request a hearing by writing to the
development of the Plan and, pursuant security industrial base; Commission’s Secretary and serving the
to 42 U.S.C. 6622, is soliciting public (c) the capabilities of the domestic Applicant with a copy of the request,
input through this RFI to obtain manufacturing workforce; personally or by mail. Hearing requests
recommendations from a wide range of (d) export opportunities and trade should be received by the Commission
stakeholders, including representatives policies; by 5:30 p.m. on February 26, 2018, and
from diverse manufacturing companies, (e) financing, investment, and should be accompanied by proof of
academia, and other relevant taxation policies and practices; service on the Applicant, in the form of
organizations and institutions. The (f) federal regulations; an affidavit or, for lawyers, a certificate
public input provided in response to (g) emerging technologies and
of service. Pursuant to rule 0–5 under
this RFI will inform OSTP and NSTC as markets; the Advisers Act, hearing requests
they work with Federal agencies and (h) advanced manufacturing research
should state the nature of the writer’s
other stakeholders to develop the Plan. and development undertaken by
interest, any facts bearing upon the
competing nations; and
Questions To Inform Development of desirability of a hearing on the matter,
(i) the capabilities of the
the Plan the reason for the request, and the issues
manufacturing workforce of competing
Through this RFI, OSTP seeks contested. Persons who wish to be
nations.
responses to the following questions to notified of a hearing may request
7. Is there any additional information
improve government coordination and notification by writing to the
related to advanced manufacturing in
provide long-term guidance for Federal Commission’s Secretary.
the United Stated, not requested above,
programs and activities in support of ADDRESSES: Secretary, U.S. Securities
that you believe OSTP should consider?
United States manufacturing and Exchange Commission, 100 F Street
Dated: January 30, 2018. NE, Washington, DC 20549–1090.
competitiveness, including advanced
Ted Wackler, Applicant, c/o Laura E. Flores and
manufacturing R&D. Responses should
Deputy Chief of Staff and Assistant Director. Monica L. Parry, Morgan, Lewis &
clearly indicate which question(s) is
being addressed. [FR Doc. 2018–02160 Filed 2–2–18; 8:45 am] Bockius LLP, 1111 Pennsylvania Ave.
1. In priority order, what should be BILLING CODE 3270–F8–P NW, Washington, DC 20004.
the near-term and long-term objectives FOR FURTHER INFORMATION CONTACT:
for advanced manufacturing, including Laura L. Solomon, Senior Counsel, at
R&D objectives, the anticipated time SECURITIES AND EXCHANGE (202) 551–6915, or Robert Shapiro,
frame for achieving the objectives, and COMMISSION Branch Chief, at (202) 551–6821
the metrics for use in assessing progress (Division of Investment Management,
[Investment Advisers Act Release No. 4850;
toward the objectives? File No. 803–00243]
Chief Counsel’s Office).
2. How can Federal agencies and SUPPLEMENTARY INFORMATION: The
federally funded R&D centers
sradovich on DSK3GMQ082PROD with NOTICES

Janney Montgomery Scott LLC; Notice following is a summary of the
supporting advanced manufacturing of Application application. The complete application
R&D foster the transfer of R&D results may be obtained via the Commission’s
into new manufacturing technologies January 30, 2018. website at http://www.sec.gov/rules/
and United States-based manufacturing AGENCY: Securities and Exchange iareleases.shtml or by calling (202) 551–
of new products and processes for the Commission (‘‘Commission’’). 8090.
benefit of society to ensure national, ACTION: Notice of application for an The Applicant seeks relief from the
energy, and economic security? What exemptive order under section 206A of written disclosure and consent

VerDate Sep<11>2014 18:08 Feb 02, 2018 Jkt 244001 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 E:\FR\FM\05FEN1.SGM 05FEN1
Federal Register / Vol. 83, No. 24 / Monday, February 5, 2018 / Notices 5149

requirements of section 206(3) of the be in compliance with the provisions of may act as principal in connection with
Advisers Act that would be similar to section 206(3) of the Advisers Act when the transaction, that the client
relief provided by Advisers Act rule the investment adviser, or a person authorized the transaction, and that the
206(3)-3T (the ‘‘Rule’’), which expired controlling, controlled by, or under investment adviser sold the security to
by its terms on December 31, 2016. The common control with the investment or bought the security from the client for
relief sought by the Applicant, if adviser, acting as principal for its own its own account. The investment adviser
granted, would be subject to conditions account, sold to or purchased from an also was required to deliver to the
similar to those under the Rule, as well advisory client any security, provided client, at least annually, a written
as certain revised or additional that the investment adviser complied statement listing all transactions that
conditions. with the conditions of the Rule. were executed in the account in reliance
2. The Rule required, among other on the Rule, including the date and
Applicant’s Representations things, that the investment adviser price of each transaction.
1. The Applicant is registered as an obtain a client’s written, revocable 4. The Rule expired on December 31,
investment adviser with the consent prospectively authorizing the 2016. Absent the requested relief, the
Commission and is a registered broker- adviser, directly or indirectly, acting as Applicant would be required to provide
dealer. The Applicant offers the Partners principal for its own account, to sell any trade-by-trade written disclosure to each
Advisory Program (the ‘‘Program’’), a security to or purchase any security nondiscretionary advisory client with
nondiscretionary advisory program. from the client. The consent was whom the Applicant sought to engage in
2. The Applicant established the required to be obtained after the adviser a principal transaction in accordance
Program in 1999. Prior to December 31, provided the client with written with section 206(3). The Applicant
2016, the Applicant relied on the Rule disclosure about: (i) The circumstances submits that its nondiscretionary clients
to engage in principal transactions with under which the investment adviser have had access to the Applicant’s
its clients in the Program. may engage in principal transactions inventory through principal transactions
3. As of December 31, 2016, the with the client; (ii) the nature and with the Applicant for a number of
Applicant had a total of 23,428 client significance of the conflicts the years, and expect to continue to have
accounts enrolled in the Program with investment adviser has with its client’s such access in the future. The Applicant
aggregate assets of $7,318,704,000. On interests as a result of those believes that engaging in principal
the same date, 1,491 client accounts had transactions; and (iii) how the transactions with its clients provides
consented to principal transactions in investment adviser addresses those certain benefits to its clients, including
their Program accounts in reliance on conflicts. The investment adviser also access to securities of limited
the Rule. In 2016, 4,527 trades were was required to provide trade-by-trade availability, such as municipal bonds,
effected in reliance on the Rule in the disclosure to the client, before the and that the written disclosure and
Program. Approximately 90 percent of execution of each principal transaction, client consent requirements of section
the trades done in reliance on the Rule of the capacity in which the adviser may 206(3) act as an operational barrier to its
in this period were purchases by client act with respect to the transaction, and ability to engage in principal trades with
accounts; the average purchase was obtain the client’s consent (which may its clients, especially when the
approximately $29,228. Approximately be written or oral) to the transaction. transaction involves securities of
10 percent of the trades done in reliance The Rule was available only to an limited availability.
on the Rule in this period were sales investment adviser that was also a 5. Unless the Applicant is provided
from client accounts; the average sale broker-dealer registered under section an exemption from the written
was approximately $30,011. 15 of the Securities Exchange Act of disclosure and client consent
4. The Applicant acknowledges that 1934 (‘‘Exchange Act’’) and could only requirements of section 206(3), the
the Order, if granted, would not be be relied upon with respect to a Applicant believes that it will be unable
construed as relieving in any way the nondiscretionary account that was a to provide the same range of services
Applicant from acting in the best brokerage account subject to the and access to the same types of
interests of an advisory client, including Exchange Act, and the rules thereunder, securities to its nondiscretionary
fulfilling the duty to seek the best and the rules of the self-regulatory advisory clients as it was able to provide
execution for the particular transaction organization(s) of which it is a member. to its clients under the Rule.
for the advisory client; nor shall it The Rule was not available for principal 6. The Applicant notes that, if the
relieve the Applicant from any transactions if the investment adviser or requested relief is granted, it will
obligation that may be imposed by a person who controlled, was controlled remain subject to the fiduciary duties
sections 206(1) or (2) of the Advisers by, or was under common control with that are generally enforceable under
Act or by other applicable provisions of the adviser (‘‘control person’’) was the sections 206(1) and 206(2) of the
the federal securities laws or applicable issuer or an underwriter of the security Advisers Act, which, in general terms,
Financial Industry Regulatory Authority (except that an investment adviser could require the Applicant to: (i) Disclose
(‘‘FINRA’’) rules. rely on the Rule for trades in which the material facts about the advisory
investment adviser or a control person relationship to its clients; (ii) treat each
Applicant’s Legal Analysis client fairly; and (iii) act only in the best
was an underwriter of non-convertible
1. Section 206(3) provides that it is investment-grade debt securities). interests of its client, disclosing
unlawful for any investment adviser, 3. The Rule also required the conflicts of interest when present and
directly or indirectly, acting as principal investment adviser to provide to the obtaining client consent to arrangements
for its own account, knowingly to sell
sradovich on DSK3GMQ082PROD with NOTICES

client a trade confirmation that, in that present such conflicts.
any security to or purchase any security addition to the requirements of rule 7. The Applicant further notes that, in
from a client, without disclosing to the 10b–10 under the Exchange Act, its capacity as a broker-dealer with
client in writing before the completion included a conspicuous, plain English respect to these accounts, it will remain
of the transaction the capacity in which statement informing the client that the subject to a comprehensive set of
the adviser is acting and obtaining the investment adviser disclosed to the Commission and FINRA regulations that
client’s consent to the transaction. The client before the execution of the apply to the relationship between a
Rule deemed an investment adviser to transaction that the investment adviser broker-dealer and its customer in

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Document Created: 2018-02-03 01:25:06
Document Modified: 2018-02-03 01:25:06
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice of application for an exemptive order under section 206A of the Investment Advisers Act of 1940 (``Advisers Act'') providing an exemption from the written disclosure and consent requirements of section 206(3).
Dates		The application was filed on November 22, 2017.
Contact		Laura L. Solomon, Senior Counsel, at (202) 551-6915, or Robert Shapiro, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
FR Citation		83 FR 5148