Articles Tagged with REIT

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FINRAFINRA has released its annual examination priorities letter.  The letter identifies the specific areas FINRA will be focusing on when it conducts examinations of its member brokerage firms in the coming year. According to FINRA, the list is developed based on trends it has seen in the previous year, as well as concerns expressed to FINRA by brokerage firms, investor advocates, and other regulators.  In 2017, FINRA has said it will pay particular attention to the following items, among other things:

High-Risk Brokers

Statistics show that brokers who have committed misconduct against customers are more likely to commit additional violations in the future. FINRA will closely examine the supervisory procedures of brokerage firms who hire or retain brokers with a significant history of prior sales practice complaints. Specifically, FINRA will be checking the adequacy of the firm’s procedures to detect and prevent future misconduct by recidivist brokers.

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The Securities and Exchange Commission has approved the Financial Industry Regulatory Authority’s (“FINRA”) proposed revisions to NASD Rule 2340 regarding per share estimated valuations of unlisted REITs held by customers.  FINRA first submitted the proposed rule changes in January 2014.  This week the SEC announced its approval of the proposed rule changes.   No effective date for implementation of the amended rule has been announced.

A real estate investment trust (“REIT”) is company that owns, and may also manage, income producing real property, such as apartment buildings or shopping centers.  To generate funds to purchase its portfolio of real estate, a REIT will pool the capital of many investors.  This permits smaller investors who may not be able to individually purchase real estate properties to participate in the real estate market.

There are two types of REITs: those that trade on a national securities exchange and those that do not. The amended rule specifically addresses REITs that do not trade on a national securities exchange, commonly referred to as “non-traded REITs.”  Because a non-traded REIT has a very limited secondary market, it is generally illiquid for long periods of time. Early redemption of shares is often very limited, and fees associated with the sale of these products can be high and erode total return.