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Rating:Cox Going it Alone on Soft Dollars Not Rated 3.2 Email Routing List Email & Route  Print Print
Thursday, May 31, 2007

Cox Going it Alone on Soft Dollars

by: Sean Hanna, Editor in Chief

Chris Cox is going after soft dollars too. The SEC chairman, who said this week that the Commission would hold a special roundtable to look at overhauling 12b-1 fees, is expected to outline his reasons for why soft dollars need to be thrown out during a speech later today.

Last week, Cox also asked key members of Congress to review the use of soft dollars. Cox is limited in directly banning their use since Congress created soft dollars in 1975. That means that only Congress can eliminate or substantially change the way that brokerage firms use the pseudo currency.

Christopher Cox
Securities and Exchange Commission
Chairman
A ban is what Cox himself would prefer, the SEC chairman told Dow Jones Newswires, according to an article published in the news service's Fund Track column in the Wall Street Journal.

However, the other four SEC commissioners have not blessed Cox' calls for action.

While the two Democrats on the commission -- Raol Campos and Annette Nazareth -- are likely to echo his call, the two Republican members have been notably opposed to recent new regulations and reforms in the past two years as they are concerned that the harm those new regulations create could outweigh their gains. Cox could have a window opening for reforms, though, as Paul Atkins could leave his seat to take an appointment at the Commodity Futures Trade Commission (CFTC). If he does, Cox would presumably see a door for more activist reforms open. Meanwhile, Republican Kathleen Casey only started her term last July and has yet to make her mark on the Commission.

Cox approached Congress for a review of soft-dollar allowing legislation through a letter he sent to both Senator Chris Dodd (D-Connecticut) and Representative Barney Frank (D-Massachusetts) last week. Dodd chairs the Senate Banking Committee while Frank runs the House Financial Services Committee.

"The SEC's embarked on a campaign to make investing more understandable for retail investors. This fog that surrounds soft dollars makes investing harder, not easier for ordinary investors," Cox told the news service. He explained that he believes the soft-dollar fog causes confusion and higher costs for investors with asset managers using the arrangements paying as much as four times the per share commissions charged by the cheapest trade executors. Those using soft dollars pay as much as a nickel, compared to one to two pennies for the trades not tied to research. Cox also believes that brokerage firms will continue to sell research even without soft dollars by transitioning to charging for the services.

Even without a ban, a number of fund firms that had used soft dollars to obtain research have publically halted the practice. The most prominent mutual fund firm to unbundle its trading was Fidelity Investments. Earlier, SunLife-owned MFS Funds had also stopped using the ersatz currency.  

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