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March 1, 2004

Job Losses Feared If Soft Dollars Go

By Gregory Bresiger

Mend it. Don't end it. That's the reaction of some industry executives to the plan to dramatically change the way funds charge their customers - a plan that includes the elimination of soft dollars and directed brokerage. Brokerage industry officials, some of whom have been critical of soft-dollar practices, nevertheless said that the plan by Sen. Peter Fitzgerald (R-Illinois) goes too far.

"If they abolished soft dollars, hundreds, maybe thousands of people involved in research services, would likely lose their jobs," Lee Pickard, a Washington lawyer and former SEC official who now works with soft dollar firms, told Traders Magazine. However, he said, at this point, it is unlikely that the Fitzgerald bill would pass. "But if we got a few more mutual fund scandals, yes, then it might pass," Pickard said.

One trading industry activist had an alternative plan. "It would seem to me that a more sensible solution would be simply to require more disclosure," said Mark Madoff, director of trading at Bernard L. Madoff Investment Securities, which doesn't use soft dollars.

An Instinet official, who said many of his clients use soft dollars, added that his firm would be able to adjust to their abolition. "Soft dollars is certainly an issue that needs to be addressed and fixed," said Mike Plunkett, head of equity trading in North America for Instinet. "But, as many of the institutions I deal with are saying, to get rid of them just goes too far." About 60 percent of lead institutional traders surveyed for a research report believe that it is appropriate for funds to pay for third-party services with soft dollars. The report was authored by Benn Steil, a senior fellow with the Council on Foreign Relations, and Robert Schwartz, a finance professor at the Zicklin School of Business at Baruch College in New York City.