Tomorrow is the deadline for hedge funds and brokers to comply with SEC rules defining the use of soft dollars. The new rules disqualify spending on extravagant incentives such as front row seats at the Super Bowl. In addition, payments for meals, travel, rent and other perks will also be considered abuses. Critics say this is just the SEC's backdoor attempt to regulate hedge funds. On “Morning Call”, CNBC’s Michelle Caruso-Cabrera sifted through the important details.
Here's a bit of background to the rules as explained by Caruso-Cabrera: if you’re a brokerage firm, you make your money from making trades. And the more trades you get, the more money you make. So as a brokerage, you want to court the big hedge funds that do a massive amounts of trades. And you do that by getting them Super Bowl tickets, and flying them all over the world. As of tomorrow, that’s what the SEC is clamping down on.
Janaya Moscony, President of SEC Compliance Consulting, explains that soft dollar rules don't give oversight so much as they give clarification about the use of money. “There’s a distinction that needs to be made between gifts and soft dollars.Two different subjects.”