September 7, 2011
On July 12, 2006 the U.S. Securities and Exchange Commission held a Sunshine Meeting at which The SEC Chairman, Christopher Cox; the SEC Commissioners - Cynthia Glassman, Paul Atkins, Raul Campos, Annette Nazareth - the relevant SEC staff, led by Robert Colby, and the head of the SEC's Division of Investment Management, Andrew "Buddy" Donohue, discussed and voted unanimously to pass the recommended "Commission Guidance Regarding Client Commission Practices Under Section 28(e) of the Securities Exchange Act of 1934".(1)
In the Sunshine Meeting, during the comment and discussion period leading up to the unanimous vote on this guidance, the Chairman, all the Commissioners, the staff project leader, Robert Colby, and Mr. Donohue, each mentioned the high level of importance, the commission's intention, and the commission's high priority for issuing a 'second leg' of Commission Guidance to provide guidelines and recommendations for transparency and disclosure for all institutional soft dollar brokerage commission arrangements.
To many interested parties, this anticipated guidance (on universal transparency and disclosure in all institutional soft dollar brokerage commission arrangements) was interpreted as a sign that the SEC meant to "level the competitive-playing-field" between the transparent soft dollar brokerage arrangements offered by agency(2) brokerage firms which provide third-party (independent) research - and enforce similar transparency and disclosure [which seems a necessary pre-condition for proper enforcement of Section 28(e)] on the non-transparent, undisclosed soft dollar brokerage arrangements offered by full-service brokerage firms(3) in conjunction with their proprietary 'research'.
SEC Commissioner Annette Nazareth was the last commissioner to comment before the vote was taken. Commissioner Nazareth's comment provided a brief statement summarizing the comments made by those who preceded her. Because I thought you might be interested in Ms. Nazareth's summary comment, I've attached an audio-clip (wave file) of the comment.
I'm not aware of any progress on this 'second leg' of interpretive guidance on universal transparency and disclosure for all institutional soft dollar brokerage commission arrangements. Because I believe such transparency and disclosure is in the interest individuals who invest in institutional portfolios, I have filed a request for rulemaking on this issue with the SEC (see, SEC Requests for Rulemaking - File Number 4-637, May 27, 2011 "Request for Rulemaking to Mandate Universal Institutional Brokerage Commission Transparency and Disclosure" at: http://www.sec.gov/rules/petitions.shtml )
Footnotes:
(1) You can find the full audio of the July 12, 2006 SEC Sunshine Meeting at: http://www.sec.gov/news/openmeetings/2006/071206openmeeting.asx
(2) An agency broker is a broker that acts as a middle man to the stock exchange, and places trades on behalf of clients. This is in direct contrast to broker-dealers, who purchase orders from clients and then sell these blocks into the market. Special care must be taken when using any broker, as there may be hidden fees associated with placing trades.
(3) For more on the potential for conflicts of interest arising out of non-transparent institutional soft dollar brokerage arrangements see the Wikipedia entry "Soft Dollars" at:
http://en.wikipedia.org/wiki/Soft_dollar
Best Regards,
Bill George
at: http://www.scribd.com/Bill%20George