Cox calls for ban of soft dollar deals

Cox calls for ban of soft dollar deals

	Published : Thu, 31 May 2007 21:45 By : Agencies Print this Story

NEW YORK (AP) - Securities and Exchange Commission Chairman Christopher Cox on Thursday called on Congress to repeal legal protections for a long-running Wall Street practice in which money managers pay above-average trading commissions to brokerage firms in exchange for research and other perks.

Regulators have called these transactions -- known as 'soft dollar' deals on Wall Street -- little more than kickbacks. Money managers are able to use the extra fees collected to pay for computers, office administration and other items not directly related to the management of customers' investments.

Cox said during a speech before business leaders in New York City that 'soft dollars need to see the light of day.' He wants Congress to either ban the practice or significantly reduce protections for soft-dollar arrangements.

'There is a lack of transparency that may be causing higher costs that are born on the investor,' he said. 'Money managers should never be put into a position where they have incentive to not put their clients first.'

These transactions have been legal since 1975, when Congress backed the inflated commissions so long as money managers had determined the money was used for services that benefited investors -- such as research or brokerage arrangements.

Investors paying for soft-dollar extras typically are charged an additional 5 cents per share in commissions -- compared with the 1 or 2 cents levied for electronic trading. There are some money managers on Wall Street that do not accept soft-dollar transactions and pay for research separately.

Cox said he prefers that Congress approve an outright ban of soft-dollar deals. He sent a letter last week to Senate Banking Committee Chairman Christopher Dodd, D-Conn., and House Financial Services Committee Chairman Barney Frank, D-Mass., requesting they take up the matter.

'This witch's brew of hidden fees and conflicts of interest is at odds with the investor's best interest, and we all know we can do better,' he said. 'That's why I have asked Congress to repeal the 1975 law that provides a safe harbor for soft dollars.'

He did not know how the ban on soft dollars would be received in Washington, or among Wall Street's brokerages and money management firms.

In addition, Cox added that money managers that oversee mutual funds may use soft dollar transactions charged to one client to benefit another group. These deals might be used to help attract new business, he said.

The SEC in July approved guidelines to define exactly what constitutes soft-dollar transactions. Regulators had been seeking to clarify what types of services are permitted under an arrangement that critics say may potentially be harmful to investors.