Securities Laws and Fiduciary Duties | Exceptions and Requirements

Exceptions for Paying Up in Various Countries' Securities Laws

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Question

Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except:

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A. B. C. D. E.

A

The soft-dollar practice must be disclosed.

The correct answer is A. the manager's soft-dollar practice should be always maintained confidentially in his or her files.

Soft dollars refer to a practice in which investment managers use client commissions generated from securities transactions to pay for certain goods and services, such as research reports or trading-related tools. Soft dollars can be a valuable resource for investment managers, but they must comply with the securities laws and regulations of the respective countries they operate in.

The requirements for using soft dollars vary across countries' securities laws, but there are some typical requirements that managers must follow. Let's review the options given in the question:

A. The manager's soft-dollar practice should be always maintained confidentially in his or her files. This statement is not a typical requirement. Maintaining confidentiality in the manager's files may be a good business practice, but it is not explicitly required by securities laws.

B. At all times, the manager must seek best price and execution. This is a typical requirement for the use of soft dollars. Managers must strive to obtain the best possible price and execution for securities transactions when using soft dollars. This requirement ensures that the commissions paid are reasonable and justifiable.

C. The commission paid must be reasonable in relation to the research and execution services received. This is also a typical requirement for using soft dollars. The commission paid by the manager should be reasonable and commensurate with the value of the research and execution services received. This requirement ensures that managers do not overpay for goods and services.

D. The goods or services purchased must be for "research service." This is another typical requirement. Soft dollars should be used to purchase goods and services that have a direct relationship to the manager's research activities. It is not permissible to use soft dollars for personal or unrelated expenses.

E. None of these answers. This is not the correct answer because, as explained above, the correct answer is A. the manager's soft-dollar practice should be always maintained confidentially in his or her files.

In summary, the requirement that is not typical when it comes to soft-dollar practices is the maintenance of confidentiality in the manager's files. While confidentiality may be a good practice, it is not explicitly required by securities laws.