January 18, 2022

Volume XII, Number 18

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January 18, 2022

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SEC Proposes Best Interest Standard for Broker-Dealers

On April 18, the Securities and Exchange Commission proposed a new rule under the Securities Exchange Act of 1934, creating a standard of conduct for registered broker-dealers who make recommendations of securities transactions or investment strategies involving securities to a retail customer. The best interest standard requires broker-dealers to act in the best interest of the retail customer at the time a recommendation is made, without placing the interests of the broker-dealer ahead of the interest of the retail customer. Specifically, the best interest standard would require broker-dealers to satisfy the following obligations:

  • disclose to retail customers, in writing, the principal facts about the relationship, including material conflicts of interest related to the recommendation;
  • exercise reasonable diligence, care, skill and prudence in making the recommendation;
  • establish, maintain and enforce policies and procedures designed to identify and at a minimum disclose, or eliminate, material conflicts of interest connected to recommendations; and
  • establish, maintain and enforce policies and procedures designed to identify and disclose and mitigate, or eliminate, material conflicts of interest resulting from financial incentives related to recommendations.

Comments on the proposal should be submitted within 90 days of publication in the Federal Register. The proposed rule is available here.

©2022 Katten Muchin Rosenman LLPNational Law Review, Volume VIII, Number 110
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About this Author

Our Financial Services Practice advises a broad spectrum of domestic and international fund managers, trading advisors, banks, brokerages and proprietary trading firms in all aspects of exchange-traded and over-the-counter commodities, securities and derivatives transactions. We help clients find business-based solutions and make business-driven decisions that are in compliance with applicable regulatory requirements. Our lawyers have extensive experience in the financial markets and are fully attuned to the need to provide advice quickly and efficiently in light of the time-sensitive and...

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