ICI Comments on SEC Soft Dollar Guidance

Washington, DC, September 7, 2006 - The Institute filed comments with the SEC supporting the agency's recent interpretive guidance regarding the scope of brokerage and research services and commission-sharing arrangements. ICI noted the guidance strikes an appropriate balance between the regulation of soft dollar practices and the facilitation of soft dollar arrangements in the interests of investors, and recommended that the SEC prohibit the use of client commissions outside the safe harbor by all investment advisers, regardless of the type of client account involved.

Background
The Securities Exchange Act of 1934 establishes a safe harbor that allows money managers to use client funds to purchase "brokerage and research services" for their managed accounts under certain circumstances without breaching their fiduciary duties to clients. In October 2005, the SEC proposed to clarify the scope of "brokerage and research services" in the light of evolving technologies and industry practices. ICI responded to the proposed guidance, noting the potential benefits of soft dollar arrangements to investors and also acknowledging the conflict of interest concerns they raise.

In July of this year, the SEC released revised interpretive guidance on soft dollar usage and requested additional comment with respect to commission-sharing arrangements.

ICI Position
The Institute responded in support of the SEC's recent interpretive release, noting that the guidance properly reflects comments submitted by the Institute and others and strikes an appropriate balance between the regulation of soft dollar practices and the facilitation of soft dollar arrangements in the interests of investors.

With respect to commission-sharing arrangements, ICI strongly supports the flexibility that the final guidance provides. It commends the SEC for recognizing the variety of commission-sharing arrangements and recommends that any further guidance reflect the need for flexibility. ICI also commends the SEC for clarifying that the final guidance does not place any affirmative obligations on money managers with respect to the responsibility of introducing brokers involved in commission-sharing arrangements. The Institute urges the SEC to continue to work with the broker-dealer community to ensure that any responsibilities imposed on brokers under the guidance with respect to these types of arrangements are appropriate and workable.

Related Links
Additional information about developments on soft dollar regulations is available on this website.