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January 1, 2003

The Buyside Must Up the Ante

By Gregory Bresiger

The regulators and the horrible markets keep piling the pressure on institutional investors.

The heat now is coming from a set of 25 guidelines issued by the Association of Investment Management and Research (AIMR). The new voluntary standards recommend that the buyside monitor many aspects of the sellside's overall trading services. For starters, customers should ensure that the sellside keeps trading costs at a minimum, commit capital when necessary, handle and settle trades in a satisfactory manner, provide maximum price improvement opportunities and, most importantly, maintain anonymity of an investment managers' business.

Also high on the list are the need for advanced order entry and other technologies. The guidelines acknowledge that trade quality must be weighted on an aggregate and not necessarily on an individual trade basis. The guidelines, which follow years of scrutiny of trade practices by the Securities and Exchange Commission, also stress the importance of best execution. That's a term which AIMR broadly defines as educated trade decisions intended to maximize the value of a clients' portfolio under prevailing conditions. The standards are divided into three areas - trade policies and processes, disclosures and recordkeeping.