Vandham Securities Corp.
Jonathan G. Katz, Secretary
Re: File Number S7-09-05
We are extremely pleased that the Commission has undertaken this effort to clarify and, hopefully, simplify the usage of "soft dollars" in our industry. For years, advisors, brokers, regulators and investors have been wrestling with either the concept of "best execution" or the definition of "research" contemplated by the 28(e) safe harbor. The result has been hesitation on trade execution and confusion on research usage. Ultimately, we believe, this has proven to be a disservice to the investor / client.
The guidance offered in this release has addressed our concerns about the research definitions. The specific inclusion of the various communication services relating to trade execution sufficiently covers the evolution of the manager / broker relationship. The technology is ever-changing and we believe the analysis provided appropriately recognizes and allows for these changes.
We continue to have concerns regarding the Commission's concept of "best execution". From the beginning this has proven to be an arbitrary standard. By definition, there can be only one "best". In an effort to satisfy what is perceived to be a regulator's view, advisors have imposed undue hardships on themselves and their brokers. The result has frequently been the opposite of what they wished to achieve. A fear of "not participating" can cause both managers and brokers to negate their instinctive trading expertise by trading and executing orders in a more mechanical fashion. Many factors can effect a trade execution at a specific moment in time. Despite statements to the contrary, it is impossible to objectively determine a "best execution". Ultimately, performance is the final arbiter of what is "best". The choice and timing of investments, the timing, cost and efficiency of executions are, together, the determining factors. No single moment in time can be looked upon to determine "best execution".
Our final concern in this area is the need for "unbundling" the commissions charged. We strongly recommend that the charge for execution be identified versus the portion allocated to research. Right now, the environment is all over the place in terms of "ratio" and "rate". It is difficult to determine value or compare rates. By unbundling, managers need only to determine that he or she is paying a competitive rate as determined by the marketplace. This would place the emphasis where it belongs. For third party research providers, execution may receive more attention whereas proprietary research providers may emphasize the research itself. Unbundling clarifies the process.
Again, we appreciate the opportunity to comment on this proposal. If you require anything further, please call us at (212) 223 - 7300.
Vandham Securities Corp.