Series 7: 6.1.4.4 Purchasing And Redeeming Mutual Fund Shares

6.1.4.4  Purchasing and Redeeming Mutual Fund Shares

Several rules apply regarding how bank or stock exchange member broker-dealers can purchase and redeem mutual fund shares.

When member firms sell shares of a mutual fund, they must secure a written agreement between the sponsor (the underwriter) and the member firm. This agreement must stipulate the compensation to the member, which typically takes the form of a discount off the public offering price, often called a concession. The member firm then sells the shares to the public at the public offering price. Firms may not sell the shares to investors or nonmember broker-dealers at less than the public offering price.

Members’ compensation must be stated in the prospectus, and if the fund’s sponsor decides to give one or more members a different compensation from the others, the name of the member(s)