Richard Repetto
Traders Magazine Online News

Why Do Exchanges Own Multiple Licenses? It's Not Hard To See, Look at the SEC

In this recent research note, Sandler O'Neill + Partners, L.P. Principal Richard Repetto examines why the public exchange operators hold multiple licenses and that rationale behind this phenomenon.

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May 31, 2004

Protecting Soft-Dollar Industry

By Gregory Bresiger

Clearer, more extensive disclosure is the best way to resolve the abuse of soft dollars. That was the conclusion of most members of the U.S. Senate Banking Committee at a hearing on soft dollars.

"The Senator felt that clearer labeling on the costs of these soft-dollar arrangements would be the best solution and not abolition," according to Andrew Gray, a spokesman for Senator Richard Selby (R-Ala), the chairman of the Senate Banking Committee. He said committee members, both Democrats and Republicans, agreed that disclosure reform would be the best step.

Indeed, Senator Charles Schumer, a New York Democrat and a committee member, said that even restrictions on the use of soft dollars might have "unintended consequences." He said the consequences might be the reduction in the amount of research services for small companies.

An official of the Investorside Research Association (IRA), argues that abolition of soft dollars "would defund the independent research industry." Scott Cleland, president of the IRA, said soft-dollar problems have been the result of commingled commissions ineffectively audited. That was because the technology to monitor the commissions wasn't previously available, he said.

"The technology now exists to easily create the necessary accountability and internal controls systems, if fund managers and brokers had a fiduciary obligation to maintain auditable internal controls for soft dollars," Cleland wrote in a letter to the SEC.

Shelby's spokesman said the "committee generally agreed that soft dollars should not be ended." Indeed, a member of the committee, Senator John Sununu (R-New Hampshire), has criticized those who want a ban on soft dollars as forgetting the intent of the global settlement. The latter was entered into by the biggest Wall Street firms, which were required to help fund the expansion of independent research firms.

"A blanket ban on soft dollars would create an uneven playing field," said Sununu, speaking at the STA's annual Washington conference.

Shelby said that the SEC is due to report to the committee later this year on possible changes in soft-dollars practices.