Securities Industry Association Welcomes NASD Mutual Fund Task Force Findings And Recommendations Regarding Soft Dollar Arrangements

The Securities Industry Association welcomed the NASD Mutual Fund Task Force’s report on soft dollars and portfolio transaction costs, praising its recommendations for greater transparency for both mutual- fund boards and investors and tightened standards regarding the use of soft dollars for research.

“The task force recognizes the importance of enhanced disclosure of information about the products and services obtained through soft-dollar arrangements and proper safeguards to ensure that these are in the investors’ best interests,” said SIA Senior Vice President and General Counsel Ira Hammerman.

Soft-dollar arrangements permit mutual-fund managers to obtain research and brokerage services from broker/dealers in exchange for commission dollars. The report recommends some specific limitations on the scope of products and services that may be provided, to ensure that only those that enhance the manager’s investment decision-making process for the benefit of fund shareholders are paid for with the fund’s commission dollars.

The report calls for a level playing field between proprietary and third-party research, as well as enhanced disclosure of soft-dollar arrangements. The task force did not embrace proposals for “unbundling,” or reporting the cost of proprietary research separately from other fees. Additionally, the task force did not adopt a recommendation of the Mutual Fund Directors Forum that fund directors prohibit fund managers from using fund commissions to obtain soft dollar research. Further disclosure and close review of such arrangements by fund boards is the preferable alternative, Hammerman said.

The task force’s recommendations regarding the scope of products and services that should be available through soft dollar arrangements are similar to those contained in a supplementary policy statement issued last week by the Financial Services Authority in the U.K. “We are pleased that the task force and the FSA have similar approaches to help ensure that the products and services provided through soft dollar arrangements serve the best interests of investors,” said Hammerman. “We believe that the task force recommendations are a step in the right direction toward achieving greater regulatory uniformity across international boundaries.”

The report is available at:
http://www.nasd.com/stellent/groups/rules_regs/documents
/rules_regs/nasdw_012356.pdf