SEC Soft Dollar Arrangement Guidelines Approved

July 12, 2006 ( - The Securities and Exchange Commission (SEC) approved new guidelines for soft dollar arrangements drafted last fall.

The Associated Press reports that the guidelines were unanimously approved by the SEC and will go into effect in six months. Soft dollar arrangements involve money managers paying above-average trading commissions to brokerage firms in exchange for research and brokerage services.

SEC Chairman Christopher Cox cited the need “to better circumscribe the use of soft dollars” to ensure that “they are used only for research and not for other things,” according to the AP. Critics have complained that soft dollar arrangements are effectively kickbacks resulting in investors paying for conference fees, computers, office administration and other items unrelated to the management of their money. The SEC found some money managers were using soft dollar arrangements to pay for carpeting, membership dues, professional license fees, office rent and “even entertainment and travel expenses,” Cox said, according to the news report.

The new guidelines restrict eligible research services to advice, analyses and reports, as well as market, financial, economic and similar data. SEC Commissioner Roel Campos said research from independent firms is allowable as long as brokers who execute trades are obligated to the outside firm to pay for the research.

The SEC issued a draft of the guidelines last October (See SEC Invites Soft Dollar Regulatory Input ).