The country's second-largest securities firm, Morgan Stanley, agreed to a $50 million settlement after the SEC found that 16 "preferred" funds compensated Morgan Stanley brokers for an extra marketing push by allowing the firm to handle more of its stock and bond trading. That extra trading business, in turn, resulted in millions of dollars in additional commissions for the broker/dealer.

It's a blow that hits close to home for both the fund and the broker/dealer industries: shelf-space deals are widespread among both wirehouses and large independent shops (see MME 11/24/03). Increased disclosure of shelf-space arrangements has been written into mutual fund reform legislation still being bandied about in Washington.

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