From: Emmett M. Murphy
Sent: November 15, 2005
Subject: File No. S7-09-05

Gentlemen: Here are my comments with respect to the most recent pronouncements on 28e, narrowing the scope. It is clear from the discussion that the SEC would like to abolish 28e altogether and would rather squeeze it over time than take the step of eliminating 28e.

This all goes back to how “research” is defined. I do not agree with the SEC that research is “advice” ,“analysis” and reports. That implies that we, as investment professionals rely upon outside information delivered as defined as our primary source of information to make investment decisions. Nothing could be further from the truth. In point of fact, many of us do not use Wall St. for anything other than trading and a very occasional investment idea. I the case of our small firm, the primary sources of decision making information is the company visit on premises with managements. We get on planes and work through that process. At best, Wall St information and other so called research services are corroborative.

The most important lifelines to the data and the ability to manipulate the data to serve our research purposes are Bloomberg and Baseline, two that, according to the newly proposed safe harbor, lie squarely within it. That said, I would argue that a trip specifically set to see a small company with the goal of making an investment decision should be covered within 28e and a well documented accounting for those expense should be sufficient evidence to support that. These are not vacations or pleasure trips, just as reading American Banker is not Sports Illustrated. It is also implied that soft dollar brokerage is more expensive and I would argue the opposite. Our soft dollar brokers have consistently provided better execution, largely because of the flows they see.

The regulatory environment pendulum has swung to another extreme over the past year and the deliberations on 28e are just a small part of that. As I have written previously the result of all of this will be a considerable concentration of managed assets in the hands of a few large firms. Further, the barriers to entry in our business have been raised to such a degree that only those with sizable net worth’s or those who are able to raise mega dollars at the outset will be able to build a potentially viable business. In addition fees will increase as those of us who have seen our overhead expenses rise substantially as a result of regulation, try to offset the increase to preserve the business model. There will also be those who escape via the lock up loophole as well. So, I would ask that the costs and the benefits to investors are not properly aligned with this regulatory environment.

The regulations will not prevent the Bayous or Wood Rivers of the world from operating. In addition, the ultimate irony is the largest violators of SEC rules were those firms covered under the Act of 1940. Other than raising all our costs and the time spent on relatively unproductive administration, where is the benefit to investors? The phrase “don’t confuse me with the facts” appears to have weight….

Emmett M. Murphy