Investment Advisers Act of 1940: Difference between revisions
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The Investment Advisers Act makes it unlawful for any investment adviser acting as principal, knowingly to sell any security to or purchase any security from a client without disclosing the capacity in which he is acting and obtaining the client’s consent. Because of the practical difficulties of compliance on a trade-by-trade basis, firms tend to simply refrain from engaging in principal trading with their advisory clients. | The Investment Advisers Act makes it unlawful for any investment adviser acting as principal, knowingly to sell any security to or purchase any security from a client without disclosing the capacity in which he is acting and obtaining the client’s consent. Because of the practical difficulties of compliance on a trade-by-trade basis, firms tend to simply refrain from engaging in principal trading with their advisory clients. | ||
Where advisers trade as a principal and on behalf of their clients with the same Broker-Dealer, a technical issue may arise where the Broker crosses buy orders and sell orders, something it may do systematically (see [[systematic internalisation]]. | Where advisers trade as a principal and on behalf of their clients with the same Broker-Dealer, a technical issue may arise where the Broker crosses buy orders and sell orders, something it may do systematically (see [[systematic internalisation]]. | ||
===See Also=== | |||
*[[riskless principal]] | |||
*[[systematic internalisation]] | |||
The key issue is ensuring our crossing engine can be pre-configured not to cross between certain accounts. | The key issue is ensuring our crossing engine can be pre-configured not to cross between certain accounts. | ||
Revision as of 11:28, 22 April 2014
The Investment Advisers Act of 1940 (known as the Investment Advisers Act and accessible on the SEC's Website here) is a key piece of US Legislation on the topic of Investment Management. It should not be confused with the Investment Company Act of 1940 (known colloquially as the 40 Act, which is different, albeit also a key piece of US investment management legislation, also enacted in 1940.
Both strike righteous fear into the hearts of US securities attorneys and glum resignation in the spleens of their clients. Fear, for US attorneys, of an exhilarating sort which floods the gizzard with adrenaline the way it does when you lean forward into a bungee jump. It feels a bit like bungy jumping for clients, too. Only from the perspective of the bridge.
Bungee jumping is an apt metaphor, because as soon as the 40 Act is mentioned in forensic conversation, attorneys will jump (for joy) off the client's bridge and gleefully bounce up and down in the revenue stream drifting on below as long as they possibly can.
Prohibited Transactions - Section 206
The Investment Advisers Act makes it unlawful for any investment adviser acting as principal, knowingly to sell any security to or purchase any security from a client without disclosing the capacity in which he is acting and obtaining the client’s consent. Because of the practical difficulties of compliance on a trade-by-trade basis, firms tend to simply refrain from engaging in principal trading with their advisory clients.
Where advisers trade as a principal and on behalf of their clients with the same Broker-Dealer, a technical issue may arise where the Broker crosses buy orders and sell orders, something it may do systematically (see systematic internalisation.
See Also
The key issue is ensuring our crossing engine can be pre-configured not to cross between certain accounts.