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November 1, 2004

STA Fights for Soft Dollars

By Editorial Staff

Good research is part of best execution," so the trading world must retain soft-dollar arrangements, according to one trading industry group in a letter to the Securities and Exchange Commission. That's even though no request was made for comment on soft dollars. The STA is acting proactively because the commission has had a task force studying soft dollars.

"In the current environment, some argue for the modification or elimination of soft dollars. The fact is that this payment mechanism, properly understood, allows investors to secure independent research and efficient trading simultaneously, and at a reasonable cost," stated Mary McDermott-Holland, chairman of the STA.

The STA argued that the elimination of soft dollars would retard the independent research movement. The group also asserted that shifting fund costs paid for by soft dollars to a mutual fund management fee would lead active fund managers to "to cut costs by purchasing less research." Some of these managers, the STA argued would become "closet indexers."

Finally, STA officials contended that soft-dollar arrangements have not driven up commission rates. "Per-share commissions have steadily been reduced throughout the years due to competitive pressures. More specifically, commissions related to soft-dollar arrangements have declined to an average rate of 4.9 cents per share, down from 5.6 cents in 2002."

A spokesman for the SEC said the task force is hoping to report by the end of the year.