SEC no-action letter: FSC Securities Corporation exemption from Rule 10b-10(a) for Vision2020 Advisor Program

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

DIVISION OF
MARKET REGULATION
January 30,2007
Mr. H. Edward McConnell I11
Chef Compliance Officer
FSC Securities Corporation
2300 Windy Ridge Parkway
Suite 1 100
Atlanta, GA 30339
Re: Request for Exemption from Rule lob-10(a) for Vision2020 Advisor Program Dear Mr. McConnell:
Based on the facts and representations set forth in your letter of January 30,2007, we find that it is appropriate in the public interest and consistent with the protection of investors to grant, and hereby grant, FSC Securities Corporation ("FSC") an exemption, pursuant to Rule 10-1 0(f) under the Securities Exchange Act of 1934 ("Exchange Act"), from the trade-by-trade confirmation delivery requirements of Rule lob-1 0(a) so that FSC may send those FSC clients that have granted FSC investment discretion in its capacity as an investment adviser for their wrap accounts ("Discretionary Clients"), who have requested them, periodic statements not less often than monthly, in lieu of trade-by￾trade confirmations. The periodic statements will contain all of the information required by Rule lob- 10 for transactions in securities, including options, effected by FSC for Discretionary Clients in their accounts during the applicable period. In particular, we note the following:
FSC will develop a form of written or electronic consent for Discretionary Clients to elect not to receive trade-by-trade confirmations and, in lieu - thereof, receive a periodic statement that contains the same information that would have been in the trade-by-trade confirmation for each transaction. Discretionary Clients will be able to elect to receive a periodic statement in lieu of trade-by-trade confirmations by executing a separate signature line, specifically providing for such consent, either contained in the client's account opening documentation or in a separate authorization form solely created for obtaining such consent.

Mr. H. Edward McConnell I11
January 30,2007
2. Discretionary Clients electing not to receive trade-by-trade confirmations will
be able to later change their minds and request, for no additional cost, trade￾by-trade confirmations for any transaction since the date of the last periodic statement, as well as for all subsequent transactions. FSC will also inform Discretionary Clients that they are able to request, for no additional fee, trade￾by-trade confirmations for previous transactions effected for up to a one-year period preceding the last periodic statement.
3. FSC will send all information required by Rule 10b- 10 to Discretionary
Clients in a periodic statement on at least a monthly basis.
4. FSC will inform Discretionary Clients that they are able to receive an interim
update and further details concerning any transaction effected between periodic statements without charge by contacting their FSC representative or by checking on FSC's client website. Discretionary Clients accessing FSC's website will be able to view, no later than the next business day after trade date (T+l), all information required by Rule 10b-10. Discretionary Clients will also be able to obtain the same information either by telephoning their representative or by requesting the trade-by-trade confirmation for the particular transaction.
5. FSC will continue to generate and send trade-by-trade confirmations to those
Discretionary Clients who do not elect to receive periodic statements in lieu of trade-by-trade confirmations.
6. FSC will also continue to generate and retain, in accordance with Exchange
Act Rules 17a-3 and 17a-4, trade-by-trade confirmations for Discretionary Clients who elect to receive periodic statements in lieu of trade-by-trade confirmations.
7. FSC will not require or request that Discretionary Clients elect not to receive
trade-by-trade confirmations, but will make information available on how such clients are able to make such an election. FSC client communications will inform existing and new Discretionary Clients about their ability to receive confirmations on a trade-by-trade basis or in periodic statements, but will not suggest which choice is better. Such client communications also will inform Discretionary Clients that, if interested, they should contact an FSC representative to obtain more information or to obtain a copy of a written or electronic form to request a periodic statement in lieu of trade-by-trade confirmations. These client communications will not suggest that such an election is required for FSC discretionary client accounts or that clients will incur additional costs if they did not elect to receive periodic statements in lieu of trade-by-trade confirmations.

Mr. H. Edward McConnell 111
January 30,2007
This exemption fiom Rule lob-10 is based solely upon the representations you have made and is limited strictly to the facts and conditions described in your letter. In the event that a material change occurs with respect to any of the facts or representations presented, periodic statements should be discontinued and the use of trade-by-trade confirmations should be reinstated for the transactions described above pending presentation of the facts for our consideration. The staff of the Division of Market Regulation expresses no view with respect to other questions that FSC's activities may raise, including the applicability of any other federal or state laws or the applicability of self-regulatory organization rules concerning customer account statements or confirmations. For the Commission, by the Division of Market Regulation Pursuant to delegated authority,' Brian A. Bussey Assistant Chief Counsel 17 CFR 200.30-3(a)(32). 1

Advisor Group fSC Securities Corporation
2?(10 \Vi~iclyIWgc Parl;n;:l!.
Ms. Catl~erine blcGuull.e, Cl-Lief Couilsel
Division of Market Regulation
Securities and Exchange Coim1-Lissioil
450 Fifth Street, NW
Waslington, DC 20549
Re: FSC Securities Corporation
Request for Exeinptioil from Rule 10b-1 0 for Vision2020 Advisor Program FSC Secudties Corporatioil ("FSC") requests an exemption, pursuant to Rule 10b-10(f) of the Securities Eschailge Act of 1934 ("Exchange Act"), from tlle trade-by-trade conf~ination delivery req~ull.einentsin R~lle 10b-10(a) of tl1e Exchange Act for trailsactioils in securities, includng options, it1 wrap accoui~ts for xvl-Lich FSC exercises investineilt dscxetion 111its capacity as an iil~iestlllellt adviser.' FSC requests tllis relief to perinit it to send requesting clients, instead of trade-by-trade conf~mations,a periodic statement not less often thail montl~l~~ tltat contai~ls all of the iilforlllatloil required by Rule lob-10(a), for dtscretionaly transactions, effected in their accouilt during tlle applicable period.' INTRODUCTION FSC is a broker-dealer registered xvith tlle Securities and Exchallge Coin11issioll ("Coini~lission") pursuant to Section 15@) of the Eschailge Act and is a ~nember of tlle National Associatioil of Securities Dealers, Inc. ("NASD"). FSC is also an investtlletlt adviser registered wid1 the Cotnilissioil pursuailt to Sectioil 203(c) of the Iilvestinetlt Advisers Act of 1940 ("Advisers Act"). FSC, as a brolier-dealer/k~vestnleiltadviser spoilsor of tlle TTision2020 Adxiisor Program ("Vision2020"), pro~rides lnanageilleilt of itlvestlneilt advisorji accouilts and effects transactioils as the broker-dealer for resulting securities transactions. All Vision2020 clients open and lnaitltalll a securities brokerage accoullt at FSC and are subject to FSC's account opening procedures. Also, all Vision2020 clients also execute ad~~isos~ agreeilleilts as well as a risli tolerailce questionnaire. Iilvesttneilt goals and objectives are established and a~propriate dsclosures regardmg fees and services made. Currentiy, clients are sent a coi~f~mation for each security trailsactioil it1 tlleir Vision 2020 account. Vision2020 clients who have granted FSC discretioilarj7 a~ltlloriq ("dtscretionasy clients") 111 its capacity as a registered invesunent adviser have choset~ to rely on FSC to provide ongoii~g oversight and to malie and effect related k~~~estinent decisions for their accounts. Solne of these dscretionas~r clients have aslied FSC to suppress trade-by-tt.ade confuinatiotls because they prefer to lnoilitor

Office of Chief Counsel
Janualy 30, 2007 thek accounts only periochcalljr tllrougll tl~eir account statements or tllrough other inforlnation FSC inalies available to its clients. PROPOSAL FSC proposes to provide lscretiona~y clients 111 wrap accounts tile abhty to receive, in lieu of trade￾by-trade confir~nations, a perioclic statement, not less often tl~an montl~ly, containing tlle information tllat would have been required to be lsclosed it1 trade-by-trade confirlnations yursuant to Rule lob-10 absent tl~e requested relief. Illlpletnentation of tlis proposal would include:
@ FSC would develop a forin of written or electrollic consent for discretionai~r clients to elect not to receive trade-bjr-tcade confir-mations and, in lieu tl~ereof, receive a periochc statetnent tllat contains the same information that mould have been in the trade-by-trade confirnation for each transaction." a Clients electing not to receive trade-by-trade confirinations could later cl~ange tllek ~nincls and request, for no adltional cost, trade-by-trade confir-mations for any transaction since tl~edate of the last penodc statement, as well as for all subsequent transactions. FSC mould also inforln clients tllat tl~ejr could request, for no adltional fee, trade-by-trade confu-inations for previous transactions effected for LIP to a one-year penod precechng the last periolc statement. FSC would send all inforination req~ked by Rule lob-1 0 to lscretiona~3~ clients in a periodc stateinent on at least a montllly basis. FSC would inform lscretionaqr clients tl~at tlley co~ld receive a11 interim update and f~lrtller details concerning any transaction effected between periochc statelnents xvithout charge by contacting tl~ek FSC representative or by chechg on FSC's client website. Clients accessing FSC's website would be able to view, no later tl~an the nest business day after trade date (T+1), all information req~ked by Rule lob-10. Clients would also be able to obtain the same inforination eitller by telepho~~ing thek representative or by ~:equesting the trade-by-trade collfirrnatioll for the particular transaction. FSC mould continue to generate and send trade-by-trade confirmations to those lscretionaqr clients who do not elect to receive periolc stateinents in lieu of trade-by-trade confirmations. FSC would also contin~ze to generate and retxiil, in accordance wit11 Exchange Act Rules 17a-3 and 17a-4, trade-by-trade confirmations for chscretionaiy clients who elect to receive periodc statenlellts in lieu of trade-by-trade confmnations. FSC would not require or request &at lscretional-y clients elect not to receive trade-by￾trade confir~~~ations, but would inalie lllforlnatioll available on how such clients could lnalie such an election. FSC client corninullicatiolls would inform existing and new discretioilarji clients about their abhty to receive confirmations 011 a trade-by-trade basis or in periodic statements, but would not suggest wlGch clloice is best. Such client coill~nunications also xvould inform discretionary clients tllat, if interested, thej~ should contact a FSC representative to obtain inore inforlnatioil or to obtain a copy of a written or electronic

Office of Clief Co~znsel
Januaiy 30,2007 form to request a periodic statement in lieu of trade-by-trade confumations. These client co~~murications would not suggest that such an electioil is required for FSC &scretionary accounts or that clients would incur additional costs if they did not elect to receive periochc statements 111 lieu of trade-by trade confmations. PRIOR COrYIMISSION ACTION Rule 10b-I0(a) uilder tlle Excl~ange Act requires a broker-dealer to send a trade-by-trade confurnation to its client at or before completion of each transaction. Tile Coilu~issioll staff has permitted certain brolier-dealers to send to clients a perio&c statelllent it1lieu of trade-by-~ade confuinations, where the brolier-dealer was dually registered as an itlvestinent adviser and mas exercising investtnent &scretion in such capacity, or wl~ere investtnent discretioil was being exercised by a brolier-dealer's islvestlneilt adviser affhatc5 The Coilunission staff has also granted an eseinptioll on behalf of certain brolier-dealer sponsors of wrap fee proga~ns, perilitti~lgSL~C~I brolier-dealers to confuln transactions it1 wrap fee programs tllrough periodic statements in lieu of trade-by-trade confirmations." The relief requested by FSC is cotlsisteilt wit11 a he of letters perinitting broker-dealers to send periodic stateinents it1 lieu of trade-by-trade confuinations where the brolier-dealer or its affhate exercises iilvestrneilt discretion over the account. FSC believes that, under tlle terms of tlle proposed exemption, discretionaiy wrap clients wd be provided the investor protections collteillplated by Rule lob-10 without obligating such clieilts to receive trade-bjr-trade co~lfirtnatiolls they do not want and l~ave requested not to receive. The ~roposal\vdl not duninish FSC's clients' right to receive confumations on request, if desired, and it wdl give clients the option to rely on a periodic statelnent instead. Moreover, FSC believes that tlle requested relief is consistent wit11 tl~e procedures authorized for otller iilvestrnellt aclvisol~r pr0gr""s. Should you have f~utller questions or require additional itlforinatioil regarcling tlis request, please do not l~esitate to call ine at 770.690.3666. Thailli you for your consideration of tlis request. Sincerely, H. Edward McCoilnell I11 / Cl-rief Colnpliance Officer cc: Tllomas bl. Wells, Clzief Legal Officer -FSC Securities Corporatioll Brian A. Bussey, Assistaslt Clief Counsel -U.S. Securities and Exchailge Coi1~1zission Norman Tvl.lieed, Special Counsel -U.S. Securities and Exchange Collvnission

Janualy
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FSC will
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Coullsel to send a trade-by-trade confirinatioll @ collsisteilt with Rule 10b-10 where FSC clients exercise trading discretion. FSC is only requestilg relief from Rule lob-10 for trades entered subject to FSC's investnlent discretion. FSC does not effect trailsactions for discretionaql private clients pursuant to hold-in-custody repurcl~ase agreetnents. If tlis becomes the circu~instance, FSC would send trade-by-trade confirlllations pursuant to Rule 15~3-3@)(4) of the Exchange Act. FSC is not seelcing relief to allow it to send periodic statelnents on a quarterly basis even though it \dl slot act as ~rincipal in 11~.allsactioi1s \Vlth discretionaq~ clients aild \dl not charge its discretionaiy clients transactioll fees such as

mark-ups, marlr-downs or commissions. See Letter re: blorgu~ II(ee~a11 & Co.. Inc. (April 21, 2005).

"~ecase FSC acts as both the investlnent adviser and tile esecutkg brolier for its TJision2020 Advisor Progr:lm, FSC

cailllot rely on the class relief from the requuremeilts of Rule 10b-10(:1) granted to brolier-dealer sponsors of wrap fee

programs in Letter re: i\do/lc_)~Adn//rge,vze/lt I/i.rtifrtfe, Secnrities 111cl~1sty Associclfio~~ (hg. 23, 1999). The conditions upon

which that relief was granted nlalie it clear that it is available onlj~ to broker-dealer sponsors that do not also serve as investment adviser for the wrap fee program. -1 Discretio11axj:lixvmp clients .will be able to elect to receive a periochc statenlent in lieu of trade-by-tracle confirmations I)!; executing a separate signature line, specifically providing for such consent, either colltalllect in the client's acco~ult opening docu~lleiltation or in a separate a~~tllot-ization forin solely created for obtailllllg such consent. j See Do~lnlclsoli, LofkJkNl Q-1e11l~'tfe Sec//~l'tie.r Co~pornfio~ (Ilu~gu~t 21,1997; Sc~iclcler I/lve.rfine/lf Ser/~ice,r, Itlc. (Febi-~~ary11, 1998);

il(l/~t~t, I/IC(Jully 19, 1999); SNIZJOI-dC. Ber/l.rtei/~ CO, UC (April 18, 2005); and IiC//inm B/ni,-& Cu. LLC(lmle 10, 2005).

"ee i/luicgyI/ICIIILII/L'I~I~~~tit/~fe, Secr~t-;fies I/ldristy Associntio/l (Augst 23, '1979) and i?oqnli I<~~CIII 6Co., IIIL.. (April 21,

2005).