On September 2, 2004, the SEC issued a Release adopting amendments to Investment Company Act rule 12b-1 to prohibit mutual funds from paying for the distribution of their shares with brokerage commissions generated from trading in fund portfolio securities. The SEC refers to this practice generally as "directed brokerage." Funds that wish to continue to direct portfolio brokerage to broker-dealers that also sell fund shares ("selling brokers") must implement policies and procedures designed to prevent brokerage placement decisions from being influenced by a broker's promotion or sales of fund shares. Final Rule: "Prohibition on the Use of Brokerage Commissions to Finance Distribution"; Release No. IC-26591; http://www.sec.gov/rules/final/ic-26591.htm

Download the .PDF to learn more.