Anti-Reciprocal Rule

Posted in Finance, Accounting and Economics Terms, Total Reads: 614
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Definition: Anti-Reciprocal Rule

Financial Industry Regulatory Authority (FINRA) had created a rule to protect the interest of individual investor in case of deals between brokerage firm and mutual funds.

For example:

If a brokerage firm directs its clients into a mutual fund to generate sales, which in turn does its trading through the brokerage firm thereby generating commissions - the risk in this situation being the rates at which trading is done through brokerage might not be the most competitive in the market (might be inflated) Such practices will result in the mutual fund and the brokerage fund being fined by FINRA on the grounds of violation of Anti-reciprocal rule.

 

Some of the practices which the rule prohibits are:

• Solicitation of brokerage commission as a term of sale of fund shares

• Offering / promising to offer brokerage commission by principle underwriters as a condition to sale of funds

• Suggesting, encouraging or incentivizing of dealers to sale by a principle underwriter knowing that the sale is financed by or based upon commission made from brokerage


 

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