Joe Velli, senior executive vice president of The Bank of New York and head of BNY Securities Group, has told the US Congress that continued use of soft commissions will support the growth of independent research, such as that aggregated by the BNY Securities Group.
The debate on the use of soft commissions continues on both sides of the Atlantic. The Financial Services Authority (FSA) in the UK has promised a policy statement on soft commissions at the end of this month.
Velli told the Senate Committee on Banking, Housing and Urban Affairs that the “safe harbour” created for equity research by Congress in 1975 fosters competition among research firms and money managers, benefiting the investing public. Soft dollars, he said, are the method of including payment for research in the trading commission whether the research is produced by a division of a full-service investment banking firm or by an independent research firm.
“Research creates the idea that generates the trade. Expert research has always been paid for with commission dollars, which reflects a natural alignment of ideas generated and compensation for those ideas,” Velli said. “Current proposals calling for enhanced, reasonable disclosure will better allow the asset manager to judge the value of the research, lead to greater use of independent research and help restore investor trust. Any proposal to treat independent research differently from proprietary research would simply be unfair. If we are to ban anything, let’s ban the term ‘soft dollars.’ Let’s call them what they are, ‘Research Commissions,’ and let’s encourage their use for the benefit of investors.”