Buy Side Best Execution Update

The AMD leadership and staff are focusing on meeting this month with representatives of the CFA Institute regarding fixed-income best execution standards that would apply to asset management firms. In general, the AMD has debated whether price is always the most significant factor in determining whether an asset manager has met its fiduciary duties in connection with trade execution. Items such as counterparty liquidity capability and the quality of a dealer’s processing services might also be deemed relevant, according to some buy side professionals. Thus, the opportunity to visit with a respected group such as CFA (whose own guidelines have been well-received) could offer the AMD leverage to advance this initiative. It is quite clear that market participants, including dealers and electronic trading vendors, are interested in the AMD’s views regarding this matter.

Proposed CDS Warehouse

The AMD has two seats on the Senior Oversight Group ("SOG"), which is the body that oversees the development by DTCC of the proposed new DerivServ electronic "warehouse." This effort is in response to suggestions of both industry and regulatory leaders. The trade group for hedge funds, the Managed Funds Association, also has two seats on SOG. SOG meets weekly in NYC and London (simultaneously) and relies on AMD’s buy side input so that this proposed solution, which would automate the Street’s CDS processing infrastructure, will have the broadest possible application in the industry when it is implemented most likely in the fall of 2006. The AMD has also arranged for representatives of SOG and DTCC to meet with the largest custodians that participate in TBMA as associate members of The Asset Managers Forum, which serves as the operations spokesperson for the traditional buy side. The proposed DTCC warehouse would reduce the operational risks associated with confirms, for example, in the sense that assignments and other transactions involving CDS instruments would simply be treated as real time updates to the electronic record of the derivatives contract that would be permanently maintained in this new warehouse utility. TBMA Executive Vice President Joseph Sack also attends SOG meetings; AMD members are invited to reach out to Mr. Sack with any suggestions regarding this initiative.

NOTE: This Weekly Report on Policy Developments Affecting Asset Managers is a service of the Technology, Operations and Asset Manager Relations Department of The Bond Market Association. We encourage your input as this communication is designed to promote dialogue among members of the Asset Managers Division of The Bond Market Association and The Asset Managers Forum. Please feel free to contact Joseph Sack, Executive Vice President of The Bond Market Association or Douglas Taggart or Elisa Nuottajarvi of the staff of The Bond Market Association.