Schumer gives Cox the 1, 2,3


New York – Senator Charles (Chuck) Schumer (D-NY) has weighed in on SEC Chairman Christopher Cox’s call for legislation banning soft dollars. In a letter written July 20th, Schumer questioned Cox’s position and set a few tasks for the SEC.

Chairman Cox sent a letter to the House Banking Committee on May 17, 2007 discussing the need to revise legislation on the 28(e) safe harbor rules initiated in 1975. Mr. Cox asked the Committee to consider changes to the rules, since he believes that the safe harbor rules encourage money managers to direct trade flow through specific brokers, based on their research, rather than the quality of their execution. As well, he indicated that it may encourage money managers to overtrade client portfolios in direct conflict with their fiduciary responsibilities to clients.

Chuck Schumer wrote on July 20, 2007, following up an apparent discussion with Cox. In his letter, Schumer articulated what many observers have felt–surprise that Cox would call for abolishing soft dollars so soon after the SEC had finally issued new guidance on soft dollars. Schumer also expresses his disappointment that the SEC has not issued soft dollar disclosure guidelines, which were originally promised by the end of 2006.

The letter poses three questions to Cox, to which the SEC will need to formally reply. The first two are somewhat rhetorical but the third is substantive:

1) Why have you called for abolishing soft dollars only six months after the new rules were fully implemented?

2) Given the rulemaking authority that the SEC already has, what exactly is needed from Congress?

3) When will the SEC issue new soft dollar disclosure rules for public comment?

It is no surprise that Schumer opposes a ban on soft dollars. Nevertheless, his engagement on this issue reduces the chances of legislation banning soft dollars, and increases pressure on the SEC to fulfill on its long-promised disclosure guidelines.

We include, the letter written back to Mr. Cox by Mr. Schumer, in Mr. Schumer’s inimitable style.


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