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News February 21, 2005 Issue

NYSE Warns on Bank Cash Sweeps

Advisers involved with products that feature a cash sweep into a bank account (as opposed to a money market fund) should be aware of a New York Stock Exchange information memo on the subject issued last week.

"When customer funds are swept to an affiliated bank," noted the NYSE, "it is in the interest of the member organization and its affiliates to pay as low a rate as possible, consistent with their views of competitive necessities." The exchange listed a number of "best practices" to be followed. In particular, the NYSE cautioned that when a customerís sweep is moved from a money market fund to a bank account, and the interest rate paid by the bank will be materially less than the rate paid by the fund, "prior or negative consent may not be adequate."