SEC: Unbundling Soft Dollars is OK

Concerns that separating research and trading fees violates brokerage firms' exemption under the Investment Act of 1940 are probably unwarranted, according to a Securities and Exchange Commission official, The Wall Street Journal reports.

"I don't think there are any impediments to unbundling," said Robert Plaze, associate director of the division of investment management.

Fidelity last year negotiated deals with Deutsche Bank Securities  and Lehman Brothers through which the Boston-based fund shop would pay for research out of its own reserves, and only pass the transaction cost on to customers, thereby helping to boost fund returns.

The move set off a flurry of questions, according to the SEC, from attorneys and others on behalf of brokerage houses concerned that unbundling costs could put them  in violation of the Investment Company Act of 1940, thereby jeopardizing their ability to buy and sell stocks for mutual funds.

While Plaze acknowledged the legal issues could be thorny, they are manageable, and that the SEC is sympathetic.

"I've suggested a form of analysis that would allow these types of unbundlings to go through without any problem," he said.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.