Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, August 4, 2008

SEC Votes to Issue Guidance to Mutual Fund Boards on Oversight Responsibilities

On July 30 the SEC voted to issue proposed guidance to mutual fund boards to assist them in fulfilling their oversight responsibilities with respect to trading of fund portfolio securities by investment advisers. The proposed guidance follows the interpretive guidance issued by the Commission in 2006, which clarified the scope of the safe harbor provided to investment advisers that use soft dollars to purchase brokerage and research services under Section 28(e) of the Securities Exchange Act of 1934.

The proposed guidance focuses on the board's oversight of investment advisers' obligation to seek best execution when it trades a fund's securities and addresses the board's oversight of the conflicts of interest that arise with respect to an adviser's trading practices, including those associated with an adviser's use of soft dollars.  It does not impose any new requirements on fund directors or investment advisers, but instead proposes a flexible framework for directors to work within when conducting their oversight of an adviser's trading activities. Specifically, the guidance suggests the information that a fund board should request from an investment adviser to enable the directors to determine that the adviser is managing any conflicts and using fund assets in the best interests of the fund.

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