[14410]
January 30, 2002
TO: SEC RULES COMMITTEE No. 10-02
INVESTMENT ADVISERS COMMITTEE No. 1-02
COMPLIANCE ADVISORY COMMITTEE No. 7-02
EQUITY MARKETS ADVISORY COMMITTEE No. 5-02
RE: DRAFT INSTITUTE COMMENT LETTER ON PROPOSED AIMR TRADE
MANAGEMENT GUIDELINES
As we previously informed you,1 the Association for Investment Management and
Research (“AIMR”) has published for comment draft “Trade Management Guidelines”
(“Guidelines”). The Institute has prepared a draft comment letter (attached) on the Guidelines.
The draft letter states that while the Institute generally supports the Guidelines, we have several
concerns regarding their application, as well as several recommendations regarding the
Guidelines’ proposed processes and disclosures.
I. Application of the Guidelines
The draft letter states that given the complexities and ambiguities surrounding the
concept of best execution, the Institute believes it is critical that the Guidelines be drafted in the
most flexible manner possible. The letter therefore urges AIMR to revise the Guidelines to
ensure that they provide appropriate flexibility. For these reasons, the draft letter also states
that it is critical that the Guidelines’ recommendations not be construed as mandatory for firms
to adopt. The letter notes, however, that, as drafted, the Guidelines may be viewed as
something other than completely voluntary for firms in developing and implementing
processes relating to best execution. The letter therefore urges AIMR to clarify throughout the
Guidelines that they are simply recommended practices that firms may or may not use in
determining the processes that are best suited for their firm.
Finally, the draft letter states that there is too much emphasis throughout the Guidelines
on the use of statistical measurements to determine best execution. The letter therefore
recommends that the Guidelines clarify that best execution is not a quantifiable concept and
that statistical measurements are just one part of the overall assessment that firms may make in
examining best execution.
1 See Memorandum to SEC Rules Committee No. 91-01, Investment Advisers Committee No. 26-01, Compliance
Advisory Committee No. 57-01 and Equity Markets Advisory Committee No. 46-01, dated November 19, 2001.
2
II. Trade Management Processes
The draft letter supports the concept of the establishment of a trade management
oversight committee as an option for firms but states that the Institute is concerned that the
responsibilities set forth by the Guidelines for such a committee may be too extensive. The
letter therefore recommends that a more appropriate role for the trade management oversight
committee would be to oversee and assist a firm in developing and evaluating its trading
practices, rather than having the sole responsibility for these functions.
The draft letter also strongly objects to the Guidelines’ recommendation that a firm
develop trade management procedures that adopt the AIMR Soft Dollar Standards. The letter
states that the Guidelines should be unbiased recommendations to assist firms in the
development of best execution processes and that they should not contain a recommendation
that all firms adopt specific standards with respect to soft dollar practices developed by AIMR
itself. The letter therefore recommends that AIMR eliminate this recommendation from the
Guidelines.
Finally, the draft letter opposes the recommendation that a firm compile and review
information illustrating the broker’s financial condition, including a broker’s audited financial
statements. Specifically, the letter states that this recommendation is unnecessary and could be
unduly burdensome for firms. In addition, the letter notes that it is unclear what type of and
how extensive a review of a broker’s financial statements would be appropriate. For these
reasons, the letter recommends that AIMR eliminate this recommendation from the Guidelines.
III. Disclosures
The draft letter states that while the Institute generally supports increased disclosure
that would improve the quality of information provided to clients and prospective clients, we
do not believe that it is necessary for the Guidelines to include disclosure recommendations as
registered investment advisers are already subject to similar, and more extensive, disclosure
requirements under the Advisers Act. In particular, the letter states that much of the
Guidelines’ recommended disclosures are already required in SEC Form ADV and notes that
the SEC recently proposed amendments to Form ADV to increase the disclosures required of
registered investment advisers. The letter therefore opposes the disclosure recommendations as
they would lead to duplicative and unnecessary disclosures for investment advisers.
IV. Recordkeeping
The draft letter does not contain any comments on the Guidelines’ recommendations
relating to recordkeeping. Do members believe that the Guidelines’ recordkeeping
recommendations would be unduly burdensome for firms? If yes, please provide specific
examples of recommendations that would prove burdensome. In addition, are there any
other comments members would like to make in connection with the Guidelines’
recordkeeping recommendations?
3
Comments on the Guidelines are due to AIMR no later than February 12, 2002. If you
have any comments on the draft Institute letter, please provide them to the undersigned by
phone at (202) 371-5408, by fax at (202) 326-5839, or by e-mail at aburstein@ici.org or to Amy
Lancellotta by phone at (202) 326-5824, by fax at (202) 326-5827, or by e-mail at amy@ici.org no
later than February 5.
Ari Burstein
Associate Counsel
Attachment (in .pdf format)