Subject: File Number S7-09-09

July 2, 2009

It is clear that a requirement for the use of independent, third party custodians for RIAs and Hedge Funds is in order. The potential for errors, interest conflicts and fraud is highest in those instances of self-custody or custody involving an affiliated BD or other entity. (The same can be said of directing trades through an affiliated entity.)

Extending the regulatory definition of ‘custody’ to include the practice of debiting client accounts held at independent third party custodians is a ‘bridge to far.’ Those of us who routinely operate under this business model custody client accounts at C. Schwab, TD Ameritrade, Fidelity, et al. Those entities are independently audited and generally well regulated. Debiting client accounts at third party custodians in a fully disclosed and transparent manner is one of the strengths of the current system. It should not be subsumed under the larger problem umbrella of ‘custody.’

As the co-owner of a small, state registered RIA, I appreciate the opportunity to comment. --
Stephen A Little
The Rose Investment Management & Research