Roel Campos, commissioner at the Securities and Exchange Commission, would like to revive the soft dollar disclosure regime the SEC briefly flirted with in 1995, when it proposed that annual reports should be filed by advisers that disclosed the direction of client brokerage transactions and the advisers’ receipt of non-execution services as a result of these trades. When the SEC met last month to adopt a rule for the soft dollar safe harbor, Campos said the disclosures he advocated were “not only valid but have become even more important as technology has improved and the available products and services have multiplied.” Fund directors are blindfolded without such information, he added. The proposed rule in 1995 elicited a lot of comments, a number of them hostile. The SEC did not go forward with the rule.
The Commission has vowed to return to this subject this year with many members making comments suggesting they were receptive to eventually seeing soft dollars abolished. Industry reactions to Campos’ suggestion for adviser disclosures to fund boards, however, were not enthusiastic. “Why would any investor care about how soft dollars are used” so long as the uses are permissible under the SEC’s safe harbor rule, asked Lee Pickard, partner in the Pickard & Djinis law firm and the Washington representative for third-party providers of soft dollar research. He said the only meaningful disclosure would be separating out trade execution cost from research. He predicted the SEC might propose that among whatever other soft dollar disclosures they might put forward. At the meeting last month, Andrew Donohue, director of the SEC’s Division of Investment Management, said the staff “hoped” to be back to the Commission later this year with soft dollar disclosure proposals.