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News February 1, 2010 Issue

Oversight of the Trading Process

The SEC's National CCOutreach meetings were held last week, and many pearls of wisdom were offered by staff and industry participants alike.

A few such gems were served up by the Division of Investment Management‘s adviser to the director Karen Rossotto, who urged that trading processes should keep basic regulatory principles in mind.

The idea is that the more things change, the more they stay the same, she said. Trade execution is always governed by the "fundamental regulatory concepts of an adviser’s fiduciary obligation to act in its clients’ best interests and to seek best execution."

In these days of increasingly complex trading processes, minimizing overall transaction costs must take into account implicit costs such as market impact, speed, hiding party identity and finding liquidity. Compliance programs should also focus on oversight of trading intermediaries, and policies and procedures must identify conflicts, "not only with respect to selecting brokers, but also in terms of trade sequencing and trade allocation, trading with affiliates, and other compliance factors that create risk exposure for the firm."