N.M. Admin. Code § 2.60.14.10

Current through Register Vol. 35, No. 21, November 5, 2024

Section 2.60.14.10 - SOFT DOLLAR POLICY

A. The use of soft dollars refers to the use of commissions to pay for brokerage and research services instead of brokerage fees. It is common practice among large institutions to use a portion of the available commissions in both equity and fixed income portfolios to pay for investment-related goods and services.

B. GUIDELINES - The state investment office will be guided by prudent business principles and the following guidelines:

(1) The investment office will strictly follow the safe harbor" provision of Section 28(e) of the Securities and Exchange Act. The controlling principle used to determine whether an item constitutes brokerage and research services is whether it provides lawful and appropriate assistance to the money manager in the performance of his or her investment decision-making responsibilities.

(2) All soft dollar expenditures will be for the exclusive benefit of the funds managed by the investment office.

(3) The broker must provide brokerage and research services. The broker must incur the direct legal obligation to pay the third-party providers for the brokerage and research services.

(4) The investment office will determine that the value of brokerage and research services received is reasonable in relation to the amount of commissions paid.

(5) The investment office will not pay a higher commission rate on trades allocated to the soft-dollar account than it pays on any other trades with the same broker. Best price and execution will not be sacrificed.

(6) Best execution will not be sacrificed. Securities transactions will be executed in such a manner that the total cost or proceeds in each transaction is the most favorable under the circumstances. In placing brokerage, the investment office will consider the full range and quality of a broker's services, including but not limited to execution capability, the value of research, commission rate, financial responsibility, and responsiveness to the investment office.

(7) Obligations will be satisfied using normal flow of orders. Trades will not be created to pay for soft-dollar commitments.

(8) Fixed assets acquired with soft dollars will be included on the investment office inventory. equipment on loan from a third-party soft-dollar provider will not be included on the inventory.

(9) The state investment office will maintain records of soft-dollar procurement, including soft-dollar cost and actual (hard dollar) cost if the services are offered for hard dollars or can be obtained through other sources. The records will include details of the amount of securities transactions and related commissions allocated to the soft-dollar costs together with details of the arrangement governing the level of commissions necessary to meet these costs.

(10) Soft-dollar expenditures will be reported to the council annually at the close of the fiscal year.

N.M. Admin. Code § 2.60.14.10

6/15/99; Recompiled 10/1/01