Interpretation of Section 206(3) of the Investment Advisors Act of 1940

OGC-98-65: Published: Aug 5, 1998. Publicly Released: Aug 5, 1998.


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Pursuant to a legislative requirement, GAO reviewed the Securities and Exchange Commission's (SEC) new rule on the interpretation of Section 206(3) of the Investment Advisors Act of 1940. GAO noted that: (1) the rule was issued by SEC as an interpretive release; (2) Section 206(3) generally prohibits an advisor from engaging in or effecting principal or agency transactions with an advisory client unless the advisor discloses certain information and obtains the client's consent before completing the transaction; (3) the release states that the transaction is complete upon settlement, not execution; and (4) SEC complied with the applicable requirements in promulgating the rule.

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