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August 31, 2003

Soft Dollar Reform on the Horizon

By Gregory Bresiger

With the United Kingdom's Financial Services Authority taking a tough new stand against soft-dollar practices, the Securities and Exchange Commission is also expected to clamp down. That's what several participants said at a recent conference on soft dollars and directed brokerage sponsored by the Institute for International Research.

Jay Barris, a private securities attorney, said the SEC is trying to rein in soft dollars. He also pointed to a report on rising mutual fund fees and a pending bill in Congress by Richard Baker (R.-La.) - which calls for greater disclosure of fund charges - as examples of regulators and lawmakers moving in the direction of discouraging the use of soft dollars.

The conference explored this issue: Will the American authorities, following the lead of their British counterparts, abolish soft-dollar practices or reform them?

"Personally, I don't think soft dollars are going to go away in the next few years, but maybe there will be some changes around the edges," said Gene Gohlke, associate director in the SEC's Office of Compliance, Inspections and Examinations. [See Special Feature.]

Meanwhile, the National Association of Securities Dealers has joined the movement for greater scrutiny of mutual fund costs. A proposed NASD rule would require firms to disclose their execution policies and brokerage relationships. The rule would also mandate firms to disclose if they receive any other compensation besides that described in a prospectus.