Section 26-B177. AGENCY CROSS TRANSACTIONS

 

177.1It shall be a violation of section 207(a)(9) of the Act (D.C. Offical Code § 31-5602.07(a)(9); D.C. Register at 47 DCR 7851) for any investment adviser while acting as a principal for his own account, knowingly to sell any security to or purchase any security from a client, or acting as a broker-dealer for a person other than such client, to knowingly effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of the transaction, the capacity in which it is acting and obtaining the consent of the client. The prohibitions of this paragraph shall not apply to any transaction with a customer of a broker-dealer is such broker-dealer is not acting as an investment adviser in relation to such transaction.

 

177.2For purposes of this section, "agency cross transaction for an advisory client" means a transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser, or any person controlling, controlled by, or under common control with such investment adviser, including an investment adviser representative, acts as a broker for both the advisory client and another person on the other side of the transaction. When acting in such capacity such person is required to be registered as a broker-dealer in the District of Columbia unless excluded from the definition of "broker-dealer" in Section 101 (4) of the Act (D.C. Register at 47 DCR 7838).

 

177.3An investment adviser, or any person identified in subsection 177.1 effecting an agency cross transaction for an advisory client shall be in compliance with the Act if the following conditions are met:

 

(a)The advisory client executes a written consent prospectively authorizing the investment adviser to effect agency cross transactions for such client;

 

(b)Before obtaining such written consent from the client, the investment adviser makes full written disclosure to the client that, with respect to agency cross transactions, the investment adviser will act as broker-dealer for, receive commissions from and have a potentially conflicting division of loyalties and responsibilities regarding both parties to the transactions;

 

(c)At or before the completion of each agency cross transaction, the investment adviser or any other person relying on this section sends the client a written confirmation. The written confirmation shall include:

 

(1)A statement of the nature of the transaction;

 

(2)The date the transaction took place;

 

(3)An offer to furnish, upon request, the time when the transaction took place; and

 

(4)The source and amount of any other remuneration the investment adviser received or will receive in connection with the transaction.

 

(d)In the case of a purchase, if the investment adviser was not participating in a distribution, or, in the case of a sale, if the investment adviser was not participating in a tender offer, the written confirmation may state whether the investment adviser has been receiving or will receive any other remuneration and that the investment adviser will furnish the source and amount of such remuneration to the client upon the client's written request;

 

(e)At least annually, and with or as part of any written statement or summary of the account from the investment adviser, the investment adviser or any other person relying on this section sends the client a written disclosure statement identifying:

 

(1)The total number of agency cross transactions during the period for the client since the date of the last such statement or summary; and

 

(2)The total amount of all commissions or other remuneration the investment adviser received or will receive in connection with agency cross transactions for the client during the period.

 

(f)Each written disclosure and confirmation required by this section shall include a conspicuous statement that the client may revoke the written consent required under § 177.2(a) at any time by providing written notice to the investment adviser; and

 

(g)No agency cross transaction may be effected in which the same investment adviser recommended the transaction to both any seller and any purchaser.

 

177.4Nothing in this section shall be construed to relieve an investment adviser or investment adviser representative from acting in the best interests of the client, including fulfilling his duty with respect to the best price and execution for the particular transaction for the client nor shall it relieve any investment adviser representative of any other disclosure obligations imposed by the Act.

 

source

Final Rulemaking published at 40 DCR 6732 (September 24, 1993); as amended by Emergency Rulemaking published at 48 DCR 1987 (March 2, 2001) [EXPIRED]; as amended by Final Rulemaking published at 48 DCR 4106 (May 11, 2001).