SEC: We’re Working On It


New York— As reported in the latest issue of Investment News, a spokesperson for the Division of Investment Management of the US Securities Exchange Commission (SEC) recently confirmed that the division is working on an interpretive release to supplement the soft dollar guidance issued in July 2006.  In remarks made at a conference sponsored by the American Law Institute-American Bar Association of Philadelphia, Jennifer McHugh, senior adviser to Director, indicated that the focus is on guidance to fund directors, to assist them in their oversight of soft dollar transactions:

“What the staff is preparing is a recommendation to the commission that they propose guidance to fund boards of directors providing them with insight regarding how to execute their oversight responsibility with respect to the placement of fund trades, including trades that involve soft-dollar-type arrangements,” Ms. McHugh said.

According to McHugh, the overall goal is to continue to promote increased transparency regarding the cost of brokerage, versus the cost of research and other services provided.  The SEC recognizes that significant technological and marketplace changes, such as electronic trading and client commission arrangements, are fostering more transparency.  The SEC wants to ensure that any regulation it provides does not impede market-led transformation:

“With all of these developments, it is probably becoming easier for fund boards to monitor soft-dollar-type arrangements, and we don’t want our guidance to unintentionally interfere with what the market is bringing about in terms of positive changes with respect to the trading of fund portfolio securities,” Ms. McHugh said.

McHugh’s comments suggest that the commission transparency guidance contemplated by the SEC will be less extensive than the commission disclosure regime in the UK and the latest regulation in Canada [Click here for more on the proposed Canadian soft dollar regulations.]  The SEC guidance appears to be primarily focused on disclosure to mutual fund directors, whereas other venues require public disclosure of commission spending.  While it is true that market forces are facilitating structures that provide more differentiation between execution costs and research costs, market forces do not require disclosure of those distinctions.  That must be the realm of the regulators.

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