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Spoofing, Surveillance and Supervision

Jay Biondo, Product Manager - Surveillance at Trading Technologies, co-authored an article along with James Lundy and Nicholas Wendland, both of Drinker Biddle & Reath LLP, reviewing the CFTC's regulations and expanding efforts, 21st century surveillance and supervision, as well as strategic recommendations.

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November 1, 2002

More Problems for Soft Dollars

By John A. Byrne

Staying on the right side of the law in this scandal-plagued environment is not easy in the soft dollar business. If you are paying in soft dollars for research services tarnished by corrupt practices, for instance, is that cause for alarm? That's the question a leading securities industry attorney is hearing more these days.

But, the attorney, Richard Marshall, a partner at the firm of Kirkpatrick & Lockhard, does not think there is a problem. "I don't see the SEC looking into this area," he told attendees at the annual conference of the STA. Money managers won't be looking for a refund, he added.

However, there could be sticky legal issues on another front - the perennial problem of what constitutes appropriate research and other services. It is vital that clear disclosure of the services is made, Marshall recommended.

Another troublespot for institutions could arise when a plan sponsor demands that a certain percentage of trades, say 30 percent, be routed to one specified broker in a commission recapture arrangement. If the institution normally only executes five percent of its commissions with that specified broker - as part of its mandate to achieve best execution - a conflict might arise. In this case, recommends Madison Gulley, a trading pro at Franklin Templeton who raised the issue on a conference panel, institutions should consider a correspondent arrangement with a specified broker.