In 2013, the Ohio Securities Division released a Securities Bulletin concerning suitability requirements in direct participation programs. A section of the Bulletin regarding distribution reinvestment programs (DRIPs) titled “a Word about DRIPs” caused concern among FSI’s members. The guidance appeared to require broker-dealers to perform a suitability review each time a distribution would be reinvested to ensure an investor was below Ohio’s concentration limit for alternative investments. This practice would have run counter to established practice and would have been unprecedented and would have been a major undertaking for firms without adding any perceivable additional investor protection.
In April 2014, FSI met with Ohio Commissioner Andrea Seidt and her staff in Columbus. The Securities Bulletin was a major focus of the meeting. FSI relayed its members’ concerns about a suitability review being required on a distribution reinvestment. Commissioner Seidt and her staff were receptive to FSI’s concerns and stated that they had received similar input from other trade groups and firms.
Last week, the Ohio Securities Division released another Bulletin titled “Another Word About DRIPs” that clarified the earlier guidance and addressed the concerns the Commission had heard from FSI and other industry groups. In it, the Securities Divisions clarifies that if a dealer or salesperson does not recommend participation in a DRIP or recommend the sale or purchase of additional shares in a DRIP then a suitability review is not required. Further, the Securities Division stated that it will not apply the 10% concentration limit to “purchases or sales made pursuant to a DRIP.” You can view a copy of the updated Bulletin here.
FSI thanks Commissioner Seidt and the Ohio Securities Division for being receptive to the industry’s concerns and clarifying the earlier guidance. If you have any questions about the guidance, please contact Jigar Gandhi, State Regulatory Affairs Counsel, at 202-499-7222.