Abstract

http://ssrn.com/abstract=190510
 
 

Citations



 


 



Rethinking Brokerage Rebate Arrangements: The Case for Collective Cash Pass-Through Arrangements


Joseph A. Franco


Suffolk University Law School


Villanova Journal of Law and Investment Management, Vol. 1, No. 2, Fall 1999

Abstract:     
Investment advisers customarily direct brokerage - route securities transactions to broker-dealers for execution - while managing client portfolios. In directing brokerage, an adviser is constrained by fiduciary duties and under a strict obligation to secure best execution for its client's securities transactions. Subject to such conditions, however, an adviser may cause a client to pay a higher commission in return for brokerage and research services services which may benefit the adviser rather than the client. These arrangements, called soft dollar arrangements, have flourished over the last twenty-five years, becoming a central feature in the way that broker-dealers compete for orders from managed accounts. This article explores the law and economics of soft dollar and other brokerage rebate arrangements. While noting problems with existing brokerage rebate arrangements, the article questions whether repeal of the principal statutory safe harbor that insulates soft dollar arrangements from legal challenge is warranted in view of competitive realities within the securities industry. Instead, the article proposes a new form of brokerage rebate arrangement - a collective cash pass-through arrangement - as a competitive alternative to existing arrangements. To become a viable competitive alternative, the article recommends that regulators take steps to remove legal impediments to the use of collective cash pass-through arrangements and encourage affirmative consideration of such arrangements by advisers and their clients.

Keywords: soft dollars, investment advisors, investment advisers, directed brokerage, brokerage commissions

JEL Classification: G20, G23, G24, G28, K22

Accepted Paper Series





Not Available For Download

Date posted: November 26, 1999  

Suggested Citation

Franco, Joseph A., Rethinking Brokerage Rebate Arrangements: The Case for Collective Cash Pass-Through Arrangements. Villanova Journal of Law and Investment Management, Vol. 1, No. 2, Fall 1999. Available at SSRN: http://ssrn.com/abstract=190510

Contact Information

Joseph A. Franco (Contact Author)
Suffolk University Law School ( email )
120 Tremont Street
Boston, MA 02108-4977
United States
617-573-8152 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 901

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.297 seconds