WASHINGTON (HedgeWorld.com)–When the Securities and Exchange Commission requested comment on its interpretation of the client commission practices permitted under section 28(e) of the Securities Exchange Act of 1934–i.e., the “soft-money/safe-harbor rule”–it set a deadline of Nov. 25.

Thirty-three comments arrived before that date, including one from the Managed Funds Association. Twelve comments appeared on the deadline date. Thirteen comments have arrived since then.

An SEC spokesman, John Heine, said Thursday [Dec. 15] that this isn’t unusual, and that “we try to be flexible,” in reading and considering late comments, but “if people really want their comments to be taken into account, they’ll get them in by the deadline.”

Jeffrey T. Letzler, Instinet’s deputy general counsel, submitted the last comment received, Dec. 9. Instinet, as Mr. Letzler’s submission observes, has offered soft-dollar programs for more than 15 years. He expressed that company’s concern that the proposed guidance goes further than the statutory mandate allows, creating a de facto prohibition of certain commission-sharing arrangements. This could have various harmful effects on investors, he wrote: limiting the depth and breadth of available research, increasing commission costs, reducing competition, reducing transparency, and protecting arrangements that are more costly and less efficient than those it would bar.

In an interview, Mr. Letzler said, “We had a meeting on the 22nd of November with the SEC staff. This was the earliest we could get it set up.” He said that both Instinet and the staff wanted the Instinet comment to incorporate the exchange of views at that meeting.

He also said that the staff assured the Instinet executives at the meeting that it would consider Instinet’s comments, despite a reasonable delay, past the deadline. The U.S. Thanksgiving holiday (which fell on Nov. 24, two days after that meeting) also played a role in slowing the preparation of the comment.

Another post-deadline submission came from John M. Connolly, on Dec. 5. Mr. Connolly is president and chief executive, International Shareholder Services Inc., Rockville, Md. His comment said that money managers “frequently use client commissions to pay for proxy analyses and vote recommendations, but not for services related to the mechanics of proxy voting, vote disclosure or recordkeeping. Where a manager subscribes to a combination of proxy services, the cost is typically split between hard and soft dollars . . ..”

Mr. Connolly said that he understands that these practices would generally be permitted under the SEC’s proposed interpretation of the safe harbor, but he would like a final interpretive release to be more explicit on that point.

Yet another submission came on Nov. 27 from a law student at Villanova University in Philadelphia. Thomas F. Lamprecht (perhaps affirming the view that as a general rule, law students have opinions about everything). Mr. Lamprecht’s opinion is that the SEC missed an opportunity, in this release, to improve disclosure for investors by improving accounting practices with respect to soft-dollar activities.

“If investment advisers were required to properly account for soft-dollar arrangements, investors could be given meaningful financial data to use in assessing the adviser’s soft-dollar practices in relation to those in the industry at large.”

CFaille@HedgeWorld.com

Contact Bob Keane with questions or comments at bkeane@investmentadvisor.com.