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The [[Investment Advisers Act of 1940]] (known as the {{tag|Investment Advisers Act}} and accessible on the {{tag|SEC}}'s Website [http://www.sec.gov/about/laws/iaa40.pdf here]) is a key piece of {{tag|US Legislation}} on the topic of {{tag|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.  
The [[Investment Advisers Act of 1940]] (known as the {{tag|Investment Advisers Act}} and accessible on the {{tag|SEC}}'s Website [http://www.sec.gov/about/laws/iaa40.pdf here]) is a key piece of {{tag|US Securities Regulation}} on the topic of {{tag|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.  
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 {{tag|metaphor}}, because as soon as the {{tag|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.
[[Bungee jumping]] is an apt {{tag|metaphor}}, because as soon as the {{tag|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.
 
{{investment research and the Investment Advisers Act 1940}}
===Investment research and the sneaky equity brokerage  exemption===
Under SEC guidance to the [[safe harbor]] set out in Section 28(e) of the [[Securities Exchange Act of 1934]], “[[commission]]s” may be used to purchase [[investment research|research]] on a [[soft dollar]] basis. 
 
The definition of “[[commission]]” is important: a fee that a [[broker/dealer]] levies for executing a securities transaction as [[agent]].  The SEC extended the [[safe harbor]] to certain [[riskless principal]] transactions in exchange-listed securities in 2001.
 
'''It doesn’t apply to [[Synthetic equity swap|swap]] transactions''': There, the dealer takes a fee (as principal under a bilateral transaction). this is not in a true sense a “[[commission]]”.  UBS acts as counterparty not an [[agent]] (or [[quasi-agent]]).
 
A superbly literalist, non-sensical view of the world, but there you have it. It wouldn’t be the first time, America.
 
Here is the relevant text of Section {{seaprov|28(e)}}:
{{fullanat|sea|28(e)|1934}}
Paying a broker-dealer for research outside of an execution commission creates issues under the Investment Advisers Act because an unbundled fee paid for the advice contained in research is considered "special compensation" by the SEC.  The receipt of special compensation disqualifies a broker-dealer from avoiding Investment Adviser registration by reliance upon the broker-dealer exclusion (Section 202(a)(11) of the Investment Advisers Act provides a carve-out from registration for a broker-dealer providing advice that is "solely incidental" to the delivery of broker-dealer services).  In practice, this means a US broker-dealer can provide research to its sales and trading clients, but avoid having to register with the SEC as an investment adviser so long as the broker-dealer avoids accepting any "special compensation" in connection with the research. A bundled trading commission is a customary and acceptable means of compensating a broker-dealer for traditional services like execution and research. 
====Resources====
*[https://www.sec.gov/rules/interp/34-23170.pdf SEC interpretative guidance]


===Prohibited Transactions - Section 206===
===Prohibited Transactions - Section 206===
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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-dealer]] 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-dealer]] crosses buy orders and sell orders, something it may do systematically (see [[systematic internalisation]].


{{seealso}}
{{sa}}
*[[riskless principal]]  
*[[riskless principal]]  
*[[systematic internalisation]]
*[[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.
*[[metaphor]]
*[[metaphor]]
{{ref}}
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