SEC urged to take tough line on Omgeo

SEC urged to take tough line on Omgeo

An industry body representing US investment advisors has urged the Securities and Exchange Commission to closely monitor the DTCC and Omgeo for posssible abuses of 'monopoly power' in the marketplace for post-trade processing services.

In a letter to the SEC, the Investment Council Association of America (ICAA), argues that the reliance of market participants on third party suppliers of trade matching services "will likely have a significant and continuing impact on the costs incurred by investment advisors in implementing T+1".

The letter continues: "We urge the Commission to be vigilant and aggressive in its continuing oversight of DTCC, Omgeo and other trade matching utilities. In particular we urge the Commission to monitor the fees and charges they impose on investment advisors and other market participants."

The ICAA points to the "dramatic increase" in the cost of access to the DTCC's TradeSuite services - recently transferred to Omgeo under the joint venture agreement with Thomson Financial. The Association cites the example of a small ICAA member firm which has experienced a 625% hike in annual access charges to TradeSuite over a five year period.

The ICAA also expresses concerns over client privacy issues relating to the transfer of the DTCC Standing Instructions Database to Omgeo: "Despite the obvious value and sensitivity of such information, we are unaware of any present statutory or regulatory restraint on the ability of Omgeo, GSTPA or others, to make commercial use of investment advisors' client information either directly or by sale of such information to third parties."

ICAA calls on the SEC to implement safeguards to prevent misuse of client data, including the enforcement of strict privacy audits on trade matching utilities.

The letter concludes by asking that smaller investment advisors be exempt from proposed rules requiring participation in trade matching utilities. It says that those advisors with limited client, broker/dealer and custodian relationships could equally well adapt to T+1 through existing or enhanced proprietary communications links. These firms "see little or no benefit from increased efficiency - and certainly no business necessity - of participation in 'industry utility' trade matching and electronic confirmation systems".

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