SIFMA Submits Comments to the SEC on Unlisted DPPs and REITs on Customer Account Statements

SIFMA submitted comments to the SEC on FINRA's proposed rule change to NASD Rule 2340 ("Customer Account Statements") involving per share estimated values of unlisted Direct Participation Programs ("DPPs") and Real Estate Investment Trusts ("REITs") on customer account statements.SIFMA stated that, since the FINRA-proposed rule change creates "a presumption of reliability for net investment or independent valuation methodologies which apparently may be rebutted by other facts," it is necessary that the text of the proposed rule be amended to reflect the "reasonably believe is reliable" standard for a clearing firm in relying on the estimated valuation it receives in order to post the valuation on an account statement. Currently, SIFMA explained, the proposed rule text "erroneously seeks to impose an absolute 'no reason to believe is unreliable' standard upon clearing firms."

Additionally, SIFMA commented that the proposed rule change fails to address its potential conflict with the obligation for a custodian or trustee of individual retirement accounts ("IRAs") to provide fair market value ("FMV") information to end customers and the IRS on IRS Form 5498 ("IRA Contribution Information"), which requires the inclusion of an annual FMV for every security – including DPPs and REITS – held in IRAs. FINRA stated that this conflict is not beneficial to the end customer and could not reflect FINRA's intention in seeking to improve customer protection.

See: SIFMA Comment Letter.Related news: FINRA Proposes Amendment to Rule Regarding per Share Estimated Valuations for Unlisted DPP and REIT Securities (Fed. Reg.) (February 19, 2014); FINRA Proposes Rule Change Relating to per Share Estimated Valuations for Unlisted DPP and REITS (February 3, 2014); More Detailed Guidance on Real Estate Communications (May 3, 2013).