Once again, the
Financial Industry Regulatory Authority Inc. has shown that it is more beholden to the industry it regulates than to the investing public it purports to protect.
The latest proof is Finra's recent request to the Securities and Exchange Commission to delay implementing a proposed rule that would make the pricing of nontraded real estate investment trusts more transparent to investors. Finra had originally recommended the rule take effect six months after the SEC signs off on it. In a letter dated July 11, Finra asked that it not take effect for 18 months after SEC approval.
There's no good reason we can think of for this request. In its letter to the SEC, a Finra attorney asked for more time so broker-dealers who sell nontraded REITs could adjust to the changes.
That might seem understandable — except that Finra proposed this rule nearly three years ago, in September 2011. The industry has had plenty of time to consider these changes and how they will affect business.
The proposed rule change is a good one. It would do away with broker-dealers' current practice of listing the value of nontraded
REIT shares on customer account statements at $10 a share for up to 18 months after the sponsor stops raising funds, even though the value of shares from the start is closer to $8.80 a share after commissions and other fees are taken into account.
The broker-dealer and
REIT industries believe the rule could initially curtail the sales of nontraded REITs. That's significant, given that $20 billion of nontraded REITs were sold last year, with a similar amount expected to be sold this year. Nontraded REITs are also a high-commission product, which means brokers aren't looking forward to anything that might crimp sales.
But that isn't a good reason to delay this pro-investor rule. If Finra's request is granted and the SEC approves it this month, the earliest the rule would take effect would be February 2016, almost five years after the rule was first proposed.
That's just too long. If Finra is not going to live up to its self-professed mission to protect investors, then the SEC should. Under no circumstances should it acquiesce to Finra's request to push back this rule's implementation.
