Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Notices 40607 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Advisers Act Release No. 4750; 

File No. 803–00242] 

Edward D. Jones & Co., L.P. 

August 22, 2017. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’) 

ACTION: Notice. 

Notice of application for an exemptive 

order under section 206A of the 

Investment Advisers Act of 1940 

(‘‘Advisers Act’’) providing an 

exemption from the written disclosure 

and consent requirements of section 

206(3). 

APPLICANT: Edward D. Jones & Co., L.P. 

(‘‘Applicant’’). 

RELEVANT ADVISERS ACT SECTIONS: 

Exemption requested under section 

206A from the written disclosure and 

consent requirements of section 206(3). 

SUMMARY OF APPLICATION: The 

Applicant requests that the Commission 

issue an order under section 206A 

exempting it and Future Advisers (as 

defined below) from the written 

disclosure and consent requirements of 

section 206(3) with respect to principal 

transactions with nondiscretionary 

advisory client accounts. 

FILING DATES: The application was filed 

on July 21, 2017. 

HEARING OR NOTIFICATION OF HEARING: 

An order granting the requested relief 

will be issued unless the Commission 

orders a hearing. Interested persons may 

request a hearing by writing to the 

Commission’s Secretary and serving the 

Applicant with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on September 18, 2017, 

and should be accompanied by proof of 

service on the Applicant, in the form of 

an affidavit or, for lawyers, a certificate 

of service. Pursuant to rule 0–5 under 

the Advisers Act, hearing requests 

should state the nature of the writer’s 

interest, any facts bearing upon the 

desirability of a hearing on the matter, 

the reason for the request, and the issues 

contested. Persons who wish to be 

notified of a hearing may request 

notification by writing to the 

Commission’s Secretary. 

ADDRESSES: Secretary, U.S. Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

Applicant, Laura E. Flores and Steven 

W. Stone, Morgan, Lewis & Bockius 

LLP, 1111 Pennsylvania Ave. NW., 

Washington, DC 20004. 

FOR FURTHER INFORMATION CONTACT: KayMario Vobis, Senior Counsel, at (202) 

551–6728, or Robert Shapiro, Branch 

Chief, at (202) 551–6821 (Division of 

Investment Management, Chief 

Counsel’s Office). 

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. The complete application 

may be obtained via the Commission’s 

Web site at http://www.sec.gov/rules/ 

iareleases.shtml or by calling (202) 551– 

8090. 

The Applicant seeks relief from the 

written disclosure and consent 

requirements of section 206(3) of the 

Advisers Act that would be similar to 

relief provided by Advisers Act rule 

206(3)–3T (the ‘‘Rule’’), which expired 

by its terms on December 31, 2016. The 

relief sought by the Applicant, if 

granted, would be subject to conditions 

similar to those under the Rule, as well 

as certain revised or additional 

conditions. 

Applicant’s Representations 

1. The Applicant is registered as an 

investment adviser with the 

Commission and is a registered brokerdealer. The Applicant offers the Edward 

Jones Guided Solutions® Flex Account 

(the ‘‘Program’’), a nondiscretionary 

advisory program. 

2. The Applicant commenced offering 

the Program in 2016 with a phased 

rollout beginning in March and firmwide availability in July 2016. Prior to 

December 31, 2016, the Applicant relied 

on the Rule to engage in principal 

transactions with its clients in the 

Program. 

3. As of December 31, 2016, the 

Applicant had a total of 224,739 client 

accounts enrolled in the Program with 

approximately $39.7 billion in assets 

under management. Of the total number 

of Program accounts, 32,150 were 

eligible for principal trading under the 

Rule, with $8 billion in assets under 

management as of December 31, 2016. 

In the period of March 21, 2016 through 

December 31, 2016, 4,595 trades were 

effected in reliance on the Rule in the 

Program. Approximately 55% percent of 

the trades done in reliance on the Rule 

in this period were purchases by client 

accounts; the average purchase was 

approximately $12,204. Approximately 

45% percent of the trades done in 

reliance on the Rule in this period were 

sales from client accounts; the average 

sale was approximately $14,311. 

4. The Applicant acknowledges that 

the Order, if granted, would not be 

construed as relieving in any way the 

Applicant from acting in the best 

interests of an advisory client, including 

fulfilling the duty to seek the best 

execution for the particular transaction 

for the advisory client; nor shall it 

relieve the Applicant from any 

obligation that may be imposed by 

sections 206(1) or (2) of the Advisers 

Act or by other applicable provisions of 

the federal securities laws or applicable 

FINRA rules. 

Applicant’s Legal Analysis 

1. Section 206(3) provides that it is 

unlawful for any investment adviser, 

directly or indirectly, acting as principal 

for its own account, knowingly to sell 

any security to or purchase any security 

from a client, without disclosing to the 

client in writing before the completion 

of the transaction the capacity in which 

the adviser is acting and obtaining the 

client’s consent to the transaction. The 

Rule deemed an investment adviser to 

be in compliance with the provisions of 

section 206(3) of the Advisers Act when 

the investment adviser, or a person 

controlling, controlled by, or under 

common control with the investment 

adviser, acting as principal for its own 

account, sold to or purchased from an 

advisory client any security, provided 

that the investment adviser complied 

with the conditions of the Rule. 

2. The Rule required, among other 

things, that the investment adviser 

obtain a client’s written, revocable 

consent prospectively authorizing the 

adviser, directly or indirectly, acting as 

principal for its own account, to sell any 

security to or purchase any security 

from the client. The consent was 

required to be obtained after the adviser 

provided the client with written 

disclosure about: (i) The circumstances 

under which the investment adviser 

may engage in principal transactions 

with the client; (ii) the nature and 

significance of the conflicts the 

investment adviser has with its client’s 

interests as a result of those 

transactions; and (iii) how the 

investment adviser addresses those 

conflicts. The investment adviser also 

was required to provide trade-by-trade 

disclosure to the client, before the 

execution of each principal transaction, 

of the capacity in which the adviser may 

act with respect to the transaction, and 

obtain the client’s consent (which may 

be written or oral) to the transaction. 

The Rule was available only to an 

investment adviser that was also a 

broker-dealer registered under section 

15 of the Securities Exchange Act of 

1934 (‘‘Exchange Act’’) and could only 

be relied upon with respect to a 

nondiscretionary account that was a 

brokerage account subject to the 

Exchange Act, and the rules thereunder, 

and the rules of the self-regulatory 

organization(s) of which it is a member. 

The Rule was not available for principal 

transactions if the investment adviser or 


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40608 Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Notices 

1All entities that currently intend to rely on any 

order granted pursuant to the application are named 

as Applicants. 

2 Discretion is considered to be temporary or 

limited for purposes of this condition when the 

investment adviser is given discretion: (i) As to the 

price at which or the time to execute an order given 

by a client for the purchase or sale of a definite 

amount or quantity of a specified security; (ii) on 

an isolated or infrequent basis, to purchase or sell 

a security or type of security when a client is 

unavailable for a limited period of time not to 

exceed a few months; (iii) as to cash management, 

such as to exchange a position in a money market 

fund for another money market fund or cash 

equivalent; (iv) to purchase or sell securities to 

satisfy margin requirements; (v) to sell specific 

bonds and purchase similar bonds in order to 

permit a client to take a tax loss on the original 

position; (vi) to purchase a bond with a specified 

credit rating and maturity; and (vii) to purchase or 

sell a security or type of security limited by specific 

parameters established by the client. See, e.g., 

Temporary Rule Regarding Principal Trades with 

Certain Advisory Clients, Investment Advisers Act 

Release No. 2653 (Sept. 24, 2007) at n. 31. 

a person who controlled, was controlled 

by, or was under common control with 

the adviser (‘‘control person’’) was the 

issuer or an underwriter of the security 

(except that an investment adviser could 

rely on the Rule for trades in which the 

investment adviser or a control person 

was an underwriter of non-convertible 

investment-grade debt securities). 

3. The Rule also required the 

investment adviser to provide to the 

client a trade confirmation that, in 

addition to the requirements of rule 

10b–10 under the Exchange Act, 

included a conspicuous, plain English 

statement informing the client that the 

investment adviser disclosed to the 

client before the execution of the 

transaction that the investment adviser 

may act as principal in connection with 

the transaction, that the client 

authorized the transaction, and that the 

investment adviser sold the security to 

or bought the security from the client for 

its own account. The investment adviser 

also was required to deliver to the 

client, at least annually, a written 

statement listing all transactions that 

were executed in the account in reliance 

on the Rule, including the date and 

price of each transaction. 

4. The Rule expired on December 31, 

2016. Absent the requested relief, the 

Applicant would be required to provide 

trade-by-trade written disclosure to each 

nondiscretionary advisory client with 

whom the Applicant sought to engage in 

a principal transaction in accordance 

with section 206(3). The Applicant 

submits that its nondiscretionary 

clients, many of whom were formerly 

brokerage clients, have had access to the 

Applicant’s inventory through principal 

transactions with the Applicant for a 

number of years, and expect to continue 

to have such access in the future. The 

Applicant believes that engaging in 

principal transactions with its clients 

provides certain benefits to its clients, 

including access to securities of limited 

availability, such as municipal bonds, 

and that the written disclosure and 

client consent requirements of section 

206(3) act as an operational barrier to its 

ability to engage in principal trades with 

its clients, especially when the 

transaction involves securities of 

limited availability. 

5. Unless the Applicant is provided 

an exemption from the written 

disclosure and client consent 

requirements of section 206(3), the 

Applicant believes that it will be unable 

to provide the same range of services 

and access to the same types of 

securities to its nondiscretionary 

advisory clients as it was able to provide 

to its clients under the Rule. 

6. The Applicant notes that, if the 

requested relief is granted, it will 

remain subject to the fiduciary duties 

that are generally enforceable under 

sections 206(1) and 206(2) of the 

Advisers Act, which, in general terms, 

require the Applicant to: (i) Disclose 

material facts about the advisory 

relationship to its clients; (ii) treat each 

client fairly; and (iii) act only in the best 

interests of its client, disclosing 

conflicts of interest when present and 

obtaining client consent to arrangements 

that present such conflicts. 

7. The Applicant further notes that, in 

its capacity as a broker-dealer with 

respect to these accounts, it will remain 

subject to a comprehensive set of 

Commission and FINRA regulations that 

apply to the relationship between a 

broker-dealer and its customer in 

addition to the fiduciary duties an 

adviser owes a client. These rules 

require, among other things, that the 

Applicant deal fairly with its customers, 

seek to obtain best execution of 

customer orders, and make only suitable 

recommendations. These obligations are 

designed to promote business conduct 

that protects customers from abusive 

practices that may not necessarily be 

fraudulent, and to protect against unfair 

prices and excessive commissions. 

Specifically, these provisions, among 

other things, require that the prices 

charged by the Applicant be reasonably 

related to the prevailing market, and 

limit the commissions and mark-ups the 

Applicant can charge. Additionally, 

these obligations require that the 

Applicant have a reasonable basis to 

believe that a recommended transaction 

or investment strategy involving a 

security or securities is suitable for the 

customer, based on information 

obtained through reasonable diligence. 

8. The Applicant requests that the 

Commission issue an Order pursuant to 

section 206A exempting it from the 

written disclosure and consent 

requirements of section 206(3) only with 

respect to client accounts in the 

Program and any similar 

nondiscretionary program to be created 

in the future. The Applicant also 

requests that the Commission’s Order 

apply to future investment advisers 

controlling, controlled by, or under 

common control with the Applicant 

(‘‘Future Advisers’’). Any Future 

Adviser relying on any Order granted 

pursuant to the application will comply 

with the terms and conditions stated in 

the application.1

Applicant’s Conditions 

The Applicant agrees that any Order 

granting the requested relief will be 

subject to the following conditions: 

1. The Applicant will exercise no 

‘‘investment discretion’’ (as such term is 

defined in section 3(a)(35) of the 

Exchange Act), except investment 

discretion granted by the advisory client 

on a temporary or limited basis,2 with 

respect to the client’s account. 

2. The Applicant will not trade in 

reliance on this Order any security for 

which the Applicant or any person 

controlling, controlled by, or under 

common control with the Applicant is 

the issuer, or, at the time of the sale, an 

underwriter (as defined in section 

202(a)(20) of the Advisers Act). 

3. The Applicant will not directly or 

indirectly require the client to consent 

to principal trading as a condition to 

opening or maintaining an account with 

the Applicant. 

4. The advisory client has executed a 

written revocable consent prospectively 

authorizing the Applicant directly or 

indirectly to act as principal for its own 

account in selling any security to or 

purchasing any security from the 

advisory client. The advisory client’s 

written consent must be obtained 

through a signature or other positive 

manifestation of consent that is separate 

from or in addition to the signature 

indicating the client’s consent to the 

advisory agreement. The separate or 

additional signature line or alternative 

means of expressing consent must be 

preceded immediately by prominent, 

plain English disclosure containing 

either: (a) An explanation of: (i) The 

circumstances under which the 

Applicant directly or indirectly may 

engage in principal transactions; (ii) the 

nature and significance of conflicts with 

its client’s interests as a result of the 

transactions; and (iii) how the Applicant 

addresses those conflicts; or (b) a 


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Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Notices 40609 

3For example, under sections 206(1) and (2), an 

adviser may not engage in any transaction on a 

principal basis with a client that is not consistent 

with the best interests of the client or that 

subrogates the client’s interests to the adviser’s 

own. Cf. Investment Advisers Act Release No. 2106 

(Jan. 31, 2003) (adopting Rule 206(4)–6). 

4See Report of the Securities and Exchange 

Commission, Investment Trusts and Investment 

Companies, H.R. Doc. No. 279, 76th Cong., 2d Sess., 

pt. 3, at 2581, 2589 (1939); Hearings on S.3580 

Before a Subcommittee of the Commission on 

Banking and Currency, 76th Cong., 3d Sess. 209, 

212–23 (1940); Hearings on S. 3580 Before the 

Subcomm. of the Comm. on Banking and Currency, 

76th Cong., 3d Sess. 322 (1940). 

statement explaining that the client is 

consenting to principal transactions, 

followed by a cross-reference to a 

specific document provided to the client 

containing the disclosure in (a)(i)–(iii) 

above and to the specific page or pages 

on which such disclosure is located; 

provided, however, that if the Applicant 

requires time to modify its electronic 

systems to provide the specific page 

cross-reference required by clause (b), 

the Applicant may, while updating such 

electronic systems, and for no more than 

90 days from the date of the Order, 

instead provide a cross-reference to a 

specific document provided to the client 

containing the disclosure in (a)(i)–(iii) 

above and to the specific section in such 

document in which such disclosure is 

located. Transition provision: To the 

extent that the Applicant obtained fully 

informed written revocable consent 

from an advisory client for purposes of 

rule 206(3)–3T(a)(3) prior to January 1, 

2017, the Applicant may rely on this 

Order with respect to such client 

without obtaining additional 

prospective consent from such client. 

5. The Applicant, prior to the 

execution of each transaction in reliance 

on this Order, will: (a) Inform the 

advisory client, orally or in writing, of 

the capacity in which it may act with 

respect to such transaction; and (b) 

obtain consent from the advisory client, 

orally or in writing, to act as principal 

for its own account with respect to such 

transaction. 

6. The Applicant will send a written 

confirmation at or before completion of 

each such transaction that includes, in 

addition to the information required by 

rule 10b–10 under the Exchange Act, a 

conspicuous, plain English statement 

informing the advisory client that the 

Applicant: (a) Disclosed to the client 

prior to the execution of the transaction 

that the Applicant may be acting in a 

principal capacity in connection with 

the transaction and the client authorized 

the transaction; and (b) sold the security 

to, or bought the security from, the 

client for its own account. 

7. The Applicant will send to the 

client, no less frequently than annually, 

written disclosure containing a list of all 

transactions that were executed in the 

client’s account in reliance upon this 

Order, and the date and price of each 

such transaction. 

8. The Applicant is a broker-dealer 

registered under section 15 of the 

Exchange Act and each account for 

which the Applicant relies on this Order 

is a brokerage account subject to the 

Exchange Act, and the rules thereunder, 

and the rules of the self-regulatory 

organization(s) of which it is a member. 

9. Each written disclosure required as 

a condition to this Order will include a 

conspicuous, plain English statement 

that the client may revoke the written 

consent referred to in Condition 4 above 

without penalty at any time by written 

notice to the Applicant in accordance 

with reasonable procedures established 

by the Applicant, but in all cases such 

revocation must be given effect within 

5 business days of the Applicant’s 

receipt thereof. 

10. The Applicant will maintain 

records sufficient to enable verification 

of compliance with the conditions of 

this Order. Such records will include, 

without limitation: (a) Documentation 

sufficient to demonstrate compliance 

with each disclosure and consent 

requirement under this Order; (b) in 

particular, documentation sufficient to 

demonstrate that, prior to the execution 

of each transaction in reliance on this 

Order, the Applicant informed the 

advisory client of the capacity in which 

it may act with respect to the 

transaction and that it received the 

advisory client’s consent (if the 

Applicant informs the client orally of 

the capacity in which it may act with 

respect to such transaction or obtains 

oral consent, such records may, for 

example, include recordings of 

telephone conversations or 

contemporaneous written notations); 

and (c) documentation sufficient to 

enable assessment of compliance by the 

Applicant with sections 206(1) and (2) 

of the Advisers Act in connection with 

its reliance on this Order.3 In each case, 

such records will be maintained and 

preserved in an easily accessible place 

for a period of not less than five years, 

the first two years in an appropriate 

office of the Applicant, and be available 

for inspection by the staff of the 

Commission. 

11. The Applicant will adopt written 

compliance policies and procedures 

reasonably designed to ensure, and the 

Applicant’s chief compliance officer 

will monitor, the Applicant’s 

compliance with the conditions of this 

Order. The Applicant’s chief 

compliance officer will, on at least a 

quarterly basis, conduct testing 

reasonably sufficient to verify such 

compliance. Such written policies and 

procedures, monitoring and testing will 

address, without limitation: (a) 

Compliance by the Applicant with its 

disclosure and consent requirements 

under this Order; (b) the integrity and 

operation of electronic systems 

employed by the Applicant in 

connection with its reliance on this 

Order; (c) compliance by the Applicant 

with its recordkeeping obligations under 

this Order; and (d) whether there is any 

evidence of the Applicant engaging in 

‘‘dumping’’ in connection with its 

reliance on this Order.4 The Applicant’s 

chief compliance officer will document 

the frequency and results of such 

monitoring and testing, and the 

Applicant will maintain and preserve 

such documentation in an easily 

accessible place for a period of not less 

than five years, the first two years in an 

appropriate office of the Applicant, and 

be available for inspection by the staff 

of the Commission. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–18090 Filed 8–24–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE., Washington, DC 

20549–2736. 

Extension: 

Form 24F–2; SEC File No. 270–399, OMB 

Control No. 3235–0456 

Notice is hereby given that pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520), the Securities 

and Exchange Commission (the 

‘‘Commission’’) is soliciting comments 

on the collection of information 

summarized below. The Commission 

plans to submit this existing collection 

of information to the Office of 

Management and Budget for extension 

and approval. 

Rule 24f–2 (17 CFR 270.24f–2) under 

the Investment Company Act of 1940 

(15 U.S.C. 80a) requires any open-end 

management companies (‘‘mutual 

funds’’), unit investment trusts (‘‘UITs’’) 

or face-amount certificate companies 


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