SEC Proposes Incentive-Based Compensation Rules


To implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission (the “SEC”), working in conjunction with the Department of the Treasury, the Federal Reserve and certain other government agencies, has proposed rules that would require “covered financial institutions” to disclose the structure of their incentive-based compensation practices and prohibit such institutions from maintaining compensation arrangements that provide excessive compensation or could lead to material financial loss.

Who would be Covered?

“Covered financial institutions” would include, among others, registered brokers, registered dealers and investment advisers, in each case with “total consolidated assets” of $1 billion or more. For a broker or dealer, “total consolidated assets” would be the total consolidated assets reported in its most recent year-end audited Consolidated Statement of Financial Condition filed pursuant to the Securities Exchange Act of 1934. For an investment adviser, “total consolidated assets” would be the total assets shown on the investment adviser’s balance sheet for its most recent fiscal year end (not the investment adviser’s assets under management).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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