SEC Allows Adviser to Purchase Fractional Shares Directly from Client Accounts

The SEC has issued no-action relief allowing an adviser and its affiliates to purchase fractional shares directly from client accounts in connection with an associated sale or transfer of whole shares.  Without no-action relief, such a principal transaction with a client would violate Section 206(3) of the Advisers Act.  The no-action relief requires that (i) the fractional shares are purchased on the same day as the whole shares at the same price or the market price, as the case may be, (ii) no commissions are paid, (iii) the adviser includes relevant disclosure in its Form ADV, and (iv) the value of the fractional shares would be “immaterial” to the client and the adviser.

OUR TAKE: We expect that others might request the SEC to extend this no-action relief to principal transactions in whole shares, assuming the other conditions are met.

https://www.sec.gov/divisions/investment/noaction/2016/jpmorgan-041416-206(3).htm