[14464]
February 14, 2002
TO: COMPLIANCE ADVISORY COMMITTEE No. 14-02
EQUITY MARKETS ADVISORY COMMITTEE No. 9-02
INVESTMENT ADVISERS COMMITTEE No. 3-02
SEC RULES COMMITTEE No. 18-02
RE: INSTITUTE COMMENT LETTER ON AIMR TRADE MANAGEMENT GUIDELINES
As we previously informed you,1 in November 2001, the Association for Investment
Management and Research (“AIMR”) published for comment draft “Trade Management
Guidelines” (“Guidelines”). In response to AIMR’s request for comment, the Institute filed the
attached letter. Except for the addition of comments relating to the recordkeeping provisions in
the Guidelines, the Institute’s letter is substantially similar to the draft that was circulated last
month.2 As a general matter, the letter notes that the Guidelines can be a useful tool to assist
firms in developing and implementing processes relating to best execution. Notwithstanding
this, the letter, which is summarized below, notes that we have concerns with the Guidelines’
application and several recommendations regarding the provisions relating to proposed trade
management processes, disclosure, and recordkeeping.
I. APPLICATION OF THE GUIDELINES
The letter notes that, due to the complexity of the concept of best execution, it is
extremely important that each firm be able to tailor its processes to its specific circumstances.
The letter therefore urges that the Guidelines be revised to: provide appropriate flexibility;
eliminate seemingly mandatory requirements; and clarify that best execution is not a
quantifiable concept and that statistical measurements can be only 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 See Memorandum to SEC Rules Committee No. 10-02, Investment Advisers Committee No. 1-02, Compliance
Advisory Committee No. 7-02 and Equity Markets Advisory Committee No. 5-02, dated January 30, 2002.
2
II. TRADE MANAGEMENT PROCESSES
With respect to the provisions in the Guidelines relating to Trade Management
Processes, the Institute’s letter notes the Institute’s support for the concept of the establishment
of a trade management oversight committee as an option for firms but expresses concern that
the responsibilities set forth by the Guidelines for such a committee may be too extensive. As
such, it may be unreasonable to expect such a committee to be able to effectively carry out all
these responsibilities. The letter notes that a more appropriate role for the 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 letter expresses strong opposition to the
Guidelines’ recommendation that firms adopt the AIMR Soft Dollar Standards and
recommends the elimination of this provision. The letter also opposes the Guidelines’
recommendation that a firm compile and review information illustrating the broker’s financial
condition, including a broker’s audited financial statements. The letter notes that this
recommendation is unnecessary and could be unduly burdensome for firms.
III. DISCLOSURES
With respect to provisions in the Guidelines relating to disclosure, the letter states that
most of the Guidelines’ recommended disclosures are already required in Form ADV. In
addition, however, the SEC has proposed to increase the disclosures that would be required of
federally-registered investment advisers. As such, it is unnecessary for the Guidelines to
include disclosure requirements. The letter also notes that several of the recommended
disclosures appear to be potential conflicts for the broker and not the adviser. It is therefore
unclear why the adviser should be required to make these disclosures. Should AIMR determine
that disclosure recommendations are necessary, the letter recommends that AIMR eliminate
those provisions in the Guidelines that relate to disclosure beyond that required under federal
law. The letter also recommends that the frequency of disclosure be conformed to the
requirements under the Investment Advisers Act of 1940.
IV. RECORDKEEPING
The letter expresses concerns with the provisions in the Guidelines relating to
recordkeeping. In particular, the letter notes that, in keeping with our recommendation that the
Guidelines provide appropriate flexibility, we believe the Guidelines’ recordkeeping
requirements are far too rigid and detailed in nature. Because the Advisers Act already imposes
extensive recordkeeping requirements on advisers, and because the additional recordkeeping
requirements proposed in the Guidelines could prove burdensome and add unnecessary
expense for firms, the Institute’s letter recommends that the Guidelines conform their
recordkeeping requirements to those under federal law. If, however, AIMR determines that the
Guidelines should contain recordkeeping requirements, we recommend that it clarify that
records are not expected to be maintained on a trade-by-trade basis, but rather on a periodic
basis.
Tamara K. Reed
Associate Counsel
Attachment (in .pdf format)