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NASD Rule 2340: Prices of Illiquid Securities on Account Statements

NASD Rule 2340 details information that is required on trade confirmations for special products. Included in this rule is a discussion of Direct Participation Programs (DPPs) and Real Estate Investment Trusts (REITs). As illiquid securities that may be difficult to value, member firms must use caution when providing pricing information on confirmations. The rule is as follows:

  • In order to include an estimated value on an account statement, the data used to calculate that value must be no more than 18 months old.
  • Any statement that includes an estimated value must describe the source and method by which it was developed along with a statement cautioning that due to the lack of liquidity the investor might not realize that value upon sale.

In most cases, the member is not required to include the estimate value. There is one exception, where the value is required:

  • If the annual report of the DPP or REIT includes a per share estimated value, the member MUST include an estimated value on the FIRST account statement provided after the annual report. The estimated value can be sourced from the annual report, an independent valuation service, or another source.

If a customer’s account statement does not include an estimated value, it must including cautionary language regarding the lack of liquidity of these products, a deviation between the purchase price and current value and that accurate valuation information may not be available (if applicable).

Note: This is still technically an NASD rule as it has not yet been migrated to the consolidated FINRA rulebook.