Series 6: 5.1.4.5. Purchasing And Redeeming Mutual Fund Shares

5.1.4.5. 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.

Note: Firms may not sell the shares to investors or nonmember broker-dealers at less than the public offering price unless the specific conditions for the lower price are stated in the prospectus (e.g., breakpoints, reinvested dividends).

Members’ compensation must be stated in the prospectus, and if the fund’s sponsor decides to give one or more members a