SEC Proposes More Stringent Soft Dollar Rules

by Glen Shapiro, LawAndTax-News.com, New York

24 October 2005

The US Securities and Exchange Commission last week issued guidance on the provision of so-called 'soft dollar' payments.

In a recently issued consultation document, the securities regulator explained that:

"Section 28(e) of the Exchange Act establishes a safe harbor that allows money managers to use client funds to purchase “brokerage and research services” for their managed accounts under certain circumstances without breaching their fiduciary duties to clients."

"In this release, the Commission is proposing to issue interpretive guidance with respect to the safe harbor, with the particular goal of clarifying the scope of “brokerage and research services” in the light of evolving technologies and industry practices. The Commission invites public comment on its proposed interpretive guidance."

The guidance issued by the SEC last week redefined the "brokerage and research services" that mutual funds and investment firms are permitted to receive in exchange for trading commissions, restricting them to "market, financial, economic and similar data" and banning the gifting of goods such as computer hardware and accessories, or the payment of travel or entertainment expenses.

The guidance also called for money managers to be allowed to make a "good faith determination" on whether mixed use items are permissible.

Recommended