SEC Adopts Amendments to Custody Rule

WASHINGTON (HedgeWorld.com)–The Securities and Exchange Commission adopted amendments to rule 206(4)-2 under the Investment Advisers Act, the rule that mandates the separation and identification of client funds and securities left in the custody of an adviser under the Investment Advisers Act, Sept. 11.

Because, as Paul Roye said a year ago, SEC inspectors have found advisers keeping securities certificates in their office files, where they might easily have been lost or destroyed the new rule requires advisers to maintain client funds and securities with “qualified custodians,” banks and savings associations, broker-dealers, futures commission merchants and certain foreign financial institutions.

The amended rule generally requires that an adviser’s clients receive their quarterly account statements directly from the qualified custodian, not solely from the adviser.

“Direct delivery will assure integrity of the report,” the SEC said in a statement, “and is designed to permit clients to determine whether there has been any improper trading in the account.”