Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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Do you think it's a good idea to conduct an access fee pilot to assess the pricing models used by many trading venues?

Yes

67%

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0%

Should have had a pilot program a long time ago.

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May 31, 2001

SEC Decision Due on Folios

By Gregory Bresiger

The Securities and Exchange Commis sion will reject the petition of the Investment Company Institute that online investment basket products - sometimes called folios - should be regulated in the same manner as mutual funds, according to Wall Street Letter.

The industry publication said its source was FundAction, a sister publication, which cited staff sources within the SEC.

However, an SEC spokesman told Traders Magazine as it went to press that, "the issue has yet to be decided and is still under review." Folios are another kind of online investment service.

Personalized Basket

A folio is "a personalized basket of stocks that you own," according to the FOLIOfn Web page, a leading provider of these investment services. FOLIOfn, which also has a Web page for advisers, is a broker dealer located in Vienna, Virginia.

"You can change a folio anytime before or after purchasing it by adding stocks, removing stocks, or modifying the dollar amount -- commission free, when you choose our flat fee pricing plan. You can assemble a Folio yourself, stock by stock, or you can purchase one of our 'Ready to go Folios.' In either case, you purchase the entire basket with the single click of a mouse," according to FOLIOfn.

The development of folios is of concern to buyside traders. They could face a strong new competitor that isn't hampered by the same level of rules and regulations.

"The portfolio investment programs," the ICI recently wrote the SEC, "that are the subject of this petition represent a new wave of investment vehicles that, if not appropriately regulated, could seriously undermine the investor protections built into the regulatory framework for investment companies and their investment advisers."

At Stake

The ICI argued that these unregulated programs have the potential for "self-dealing, overreaching fees and deviation from stated investment policies." The ICI also warned that "future sponsors of such investment programs may not have the same level of integrity as current sponsors, which exacerbates the potential for these abuses."

However, Barry Barbash, former director of the SEC's Division of Investment Management Consulting, is doubtful that the SEC will accept the ICI's arguments. FOLIOfn is keeping the investment advice function "peripheral, tangential - about what a broker dealer would do," Barbash said.

FOLIOfn officials argued that the ICI's petition is motivated by the industry's recent slowdown of fund inflows.

"They're just trying to slow us down. This is happening because of competitive pressures," said Nancy Smith, FOLIOfn vice president of Web content.

Smith adds that basket services can provide a portfolio of stocks at a much cheaper cost than mutual funds, which are often criticized as running high expense ratios and imposing superfluous loads. She notes that folios, as broker dealers, are already regulated.