Which activity is prohibited under the MSRB anti-reciprocal rule relating to mutual funds?

• A. Accepting pre-sale orders from investment companies
• B. Accepting portfolio trades as compensation for sales of mutual fund shares
• C. Buying mutual fund shares to fill customer orders
• D. Placing orders with mutual fund companies to fill customer orders

Answer: (B)

The key concept is that the MSRB anti-reciprocal rule bars reciprocal arrangements with mutual fund sponsors—payments or inducements tied to selling a fund’s shares. If a firm accepts a portfolio trade as compensation for its sales of mutual fund shares, that creates an inducement to push a particular fund, compromising fair dealing and investor protection. That kind of arrangement is exactly what the rule prohibits, so accepting portfolio trades as payment for mutual fund sales is not allowed.

The other activities described do not involve a compensation-for-sales arrangement with a mutual fund sponsor, so they’re not prohibited by this rule. Accepting pre-sale orders from investment companies, buying mutual fund shares to fill customer orders, and placing orders with mutual fund companies to fulfill customer orders are all standard practices that don’t inherently create the improper quid pro quo the anti-reciprocal rule targets.