SEC Issues Adopting Release for Rule 12b-1 Prohibition on Mutual Fund Directed Brokerage

The SEC issued the release (the "Adopting Release") formally adopting an amendment (the "Amendment") to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), prohibiting consideration of a broker-dealer’s efforts in selling shares of an open-end management investment company (a "fund") when determining which broker to use for fund portfolio transactions ("directed brokerage"), as approved at the SEC’s August 18, 2004 open meeting. The Amendment was adopted substantially as proposed by the SEC in February 2004. Directed brokerage prohibited by the Amendment includes not only the direction of execution services but also the direction of any service related to effecting a fund brokerage transaction, including those related to processing a brokerage transaction. The prohibition reaches transactions executed by government securities dealers and municipal securities dealers and encompasses any payment, including any commission, mark-up, mark-down, or other