The Road Not Taken

How did we get here?

The other other day I had an epiphany. I thought to myself . . . "self, you really need to perform
a 'reality check' just to make sure you haven't imagined some of what you think has happened
over the last several months". Then I thought, a good place to start my 'reality check' would be
by reviewing the audio transcript of the July 12, 2006 Securities and Exchange
Commission "Sunshine Meeting". This is the public meeting at which Chairman of the SEC
Christopher Cox, the SEC Commissioners, and members of the SEC staff discussed then
unanimously approved the interpretive release known as, Commission Guidance Regarding
Client Commission Practices Under Section 28(e) of The Securities Exchange Act of 1934.

As I listened to the audio transcript again on my computer's media player I was stunned by the
how much interesting detail I had forgotten. I was also impressed by the number of
times Christopher Cox, the Commissioners, and the staff mentioned and agreed on the
importance and the priority assigned to the pending (promised?) interpretive guidance on
transparency and disclosure.

The audio transcript of this Sunshine Meeting is 48 minutes and 2 seconds long and is well
worth reviewing in its entirety, but if you don't have the time to do so I believe you can get a
good idea of the impressions and hopes created by the meeting participants' statements
by listening to Chairman Cox's introduction to the meeting in its entirety, then using the slider
on your computers' media player to navigate to what I believe are the most relevant sections of
the meeting.

Here is the URL of the July 12, 2006 SEC "Sunshine Meeting"
> http://www.connectlive.com/events/secopenmeetings/secopenmeetings-071206-archive.asx

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3:35 Christopher Cox mentions the importance of full brokerage commission

disclosure.

8:06 Christopher Cox mentions Commission Sharing Arrangements*

11:36 Robert Colby discusses the conditions that advisors and brokers must meet to
have the safe harbor available to them.

12:05 Chairman Cox asks Robert Colby to describe how Commissions Sharing
Arrangements* will work under The Guidance. This explanation includes a
discussion about third party research.

16:30 Commissioner Glassman on unbundling and transparency

The Road Not Taken by Bill George 03/28/08 Page 1 of 2

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23:10 Commissioner Atkins discusses the importance of the next phase of guidance on
disclosure and transparency and bundled commissions.

29:36 Commissioner Atkins asks Donohue, Director of the SEC Division of

Investment Management a question, in his answer Director Donohue includes a
comment about the importance of the next phase of guidance on transparency
and disclosure.

33:29 Commissioner Campos mentions the importance of soft dollars an points to the
magnitude of the use of soft dollars. As evidence of the importance of soft dollars
Commissioner Campos mentions a Greenwich Associates’ study which reports
soft dollar use at almost one billion dollars in 2005. Mr. Campos seems unaware
that Greenwich Associates' estimates of soft dollars have always significantly
underestimated institutional soft dollar use because the Greenwich studies report
only the soft dollars generated in third-party fully disclosed brokerage, but the
Greenwich studies do not report soft dollars generated in bundled
undisclosed full-service brokerage arrangements. Under Section 28(e) all
commission amounts "paid-up" above the fully-negotiated execution related costs
are soft dollars, irrespective of whether those paid-up commissions are used to
purchase third-party research, or proprietary research [as allowed in Section
28(e)] or whether they are used to acquire goods and services that qualify under
interpretations of fiduciary discretion (see the accompanying document titled,
Drilling Down)

44:30 Commissioner Annette Nazareth expresses her thoughts on the importance and
priority of the next phase of SEC Guidance on disclosure and transparency in
all institutional client commission arrangements.

47:00 Vote taken - unanimous approval of The Guidance

* At some point after this meeting the SEC changed the definition of Commission Sharing Arrangements
and defined a new class of Commission Sharing Arrangement which the SEC gave the name Client
Commission Arrangements. This new name seemed necessary so that the activity described in Client
Commission Arrangements would not violate any of the many regulations designed to prevent abuses
which can arise from the splitting and sharing institutional clients' commissions.

Best regards,

Bill George

Title credit - see > The Road Not Taken by Robert Frost http://www.bartelby.org/119/1.html

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