New York—Senator Charles Schumer (D-NY) used the opportunity of SEC Chairman Cox’s testimony before the Senate Banking Committee last week as an opportunity to cross-examine Cox on soft dollar legislation. Cox testified that immediate legislation repealing the 28(e) safe harbor was unnecessary and that a rule regarding improved disclosure is a high priority.
Cox appeared before the Senate Banking Committee on July 31st as part of his annual review. During the question and answer session Richard Shelby (R-AL) asked Cox about his letter calling for soft dollar legislation and Cox replied that the priority for the SEC was disclosure.
Senator Schumer followed up by asking three questions similar to those in his letter to Cox dated July 20th: 1) When will disclosure rules be drafted? 2) Has your view on disclosure changed since last July when the SEC released its latest soft dollar guidance? 3) Why is legislation need now?
Cox replied that he is awaiting recommendations from the Division of Investment Management, which is responsible for regulating mutual funds, and that the staff is reviewing recommendations from the NASD. Cox said that, given his interest in this topic, the priority is ASAP. Cox said his views on disclosure had not changed since last July.
It is no secret that the IM division has been the bottleneck on disclosure rules. Part of the problem has been that expertise on the 28(e) safe harbor resides in a different division of the SEC, the Division of Market Regulation which regulates brokerage firms. The public statements by Cox last week should help move disclosure rules higher in IM’s queue.
Cox’s reference to the NASD is presumably to the 2004 NASD Task Force on soft dollars. The NASD Task Force recommended minimal disclosure of soft dollars, but that was before the FSA implemented its disclosure regime. Another factor may be that Erik Sirri, then the lone academic on the panel is now Director of the Market Reg Division (click here to see our blog on this last February.)
Schumer then pressed Cox on the need for legislation. Cox, despite his clear dislike of the 28(e) safe harbor, said that there is no immediate need for legislation. He added that at some future time, Congress may wish to revisit 28(e), but he was unaware of any specific abuses that would prompt action now.
To view the testimony go here and select the video archive. The exchange with Schumer starts around 2 hours and 2 minutes into the video.
Comment by Bill George:
The un-letter and regulatory un-certainty.
An August 7, 2007 article in BoarIQ Magazine (online) by Amanda Gerut titled, “Cox: More Soft Dollar Guidance A.S.A.P.” provides more background and other information relating to Chairman Cox’s comments to the Senate Housing, Banking and Urban Affairs Committee on July 31, 2007 (Senator Christopher Dodd is the Chairman of the Committee). > see reference