The Securities and Exchange Commission (SEC) has issued an Interpretive Release that provides guidance on money managers' use of client commissions – also known as “soft dollars” - to pay for brokerage and research services under the safe harbor of Section 28(e) of the Exchange Act. The Interpretive Release clarifies the scope of brokerage and research services and offers guidance on client commission arrangements.
“The SEC’s guidance effectively clarifies how client commissions may be used by money managers,” says Marc Lackritz, president of the Securities Industry Association (SIA). “Most importantly, the guidance does not lend itself to unnecessary over-regulation.”
Previous to the newly issued guidance, one of the main points of contention under the soft dollars rule was lack of clarity surrounding proprietary versus third-party research. The SEC’s guidance clarifies that both proprietary research and third-party research fall within the scope of the soft dollar safe harbor.
“The guidance issued by the SEC very closely reflects recommendations made by SIA and others in comment letters submitted to the SEC in late 2005,” points out Michael Udoff, vice president and associate general counsel, SIA. “We are pleased to see that the SEC carefully considered SIA’s concerns regarding commission-sharing agreements, and has recognized that best execution and the best research can often both be achieved through such arrangements.”
