PRESS RELEASE Office of Missouri State Treasurer Sarah Steelman FOR IMMEDIATE RELEASE  --  March 16, 2005

State Treasurer Sets New Safeguards For Approved Broker-Dealers

To Protect Investment of Citizens’ Tax Dollars

            JEFFERSON CITY -- The Investment Committee of the Missouri State Treasurer’s Office this week adopted a formal policy establishing criteria for the selection and monitoring of approved broker-dealers through whom investments are placed for the state of Missouri.

            "“This policy will help safeguard against fraud and assure the highest possible protections for the investment of citizens’ tax dollars,” State Treasurer Sarah Steelman said. “The plan establishes monitoring procedures to detect brokers subject to investigations involving regulatory or legal improprieties so that appropriate action can be taken regarding investments with which they could be involved.”

            The adoption of the formal policy follows a February vote by the committee to remove from the state’s preferred broker-dealer list a firm owned by a French bank involved in the Iraqi oil-for-food scandal.

            "“It is comparatively easy to track domestic companies, because they fall under the regulatory authority of the Securities and Exchange Commission,” Investment Committee Chairman Mark Mathers said. “Foreign parent companies may comply with the laws of the country in which they are located, but those laws may differ from U.S. law, and it can become very difficult to monitor the activities and stability of those companies.”

            The approved list established by the committee is composed of registered NASD broker dealers and banks in the categories of primary dealers, regional brokers and emerging market firms.

            It is through these dealers that the state places investments of Missouri’s tax dollars that are not immediately needed by the state.

            Criteria for selecting preferred broker dealers includes the services and research services they provide, their presence in Missouri, the financial strength and capital adequacy of the firm, reputation and qualifications of sales representatives, including a check on the NASD file of sales representatives, and the experience of the broker-dealers in handling investments with large government agencies.

            The policy also sets in place a system for monitoring broker dealers to assure the firms maintain the highest industry and legal standards.

            “Because these securities are conducted on a delivery-versus-payment basis, there is no default or credit risk associated with the use of broker-dealers for trades,” Mathers said. “There is, however, a transaction and market risk in the case of a failed trade, and a reputation risk the state could incur if we placed trades with a firm that has violated legal or regulatory requirements.”

            The Treasurer’s Investment Division is directed by the policy to monitor firms on the approved broker-dealer list and to investigate any areas of concern regarding activities by the broker-dealers.

            Companies involved in even isolated instances of fraud, abuse or compliance issues will be placed on a “watch” status while the company is given an opportunity to respond to the concerns and to take corrective action.

            Companies will be suspended from the list in the event of certain NASD fines or settlements based on NASD actions; civil actions involving institutional brokerage services to any state government; cases of fraud, abuse or compliance issues involving institutional brokerage services; or investment management services indicating system-wide, rather than isolated problems; and civil suits and criminal proceedings against top management of a broker-dealer that are found to have reasonable merit.

            “This is part of our efforts to give citizens the best possible protections,” Steelman said. “We want every dollar working securely and safely for the citizens of this state.”

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