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SEC Seeks Comment on Proposed Soft Dollar Guidance
Washington, DC, October 24, 2005 - The SEC is seeking public comment on an interpretive release concerning the use of “soft dollars.”
The Securities Exchange Act of 1934 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 its recent interpretive release, the SEC is proposing to issue guidance with respect to the safe harbor; in particular, by clarifying the scope of “brokerage and research services” in the light of evolving technologies and industry practices.
The interpretive release addresses:
- the appropriate framework for analyzing whether a particular service falls within the “brokerage and research services” safe harbor,
- the eligibility criteria for “research,”
- the eligibility criteria for “brokerage,” and
- the appropriate treatment of “mixed-use” items.
It also discusses a money manager’s statutory requirement to make a good faith determination that client commissions paid are reasonable in relation to the value of the brokerage and research services received, and provides guidance on third-party research and commission-sharing arrangements.
The SEC seeks comment on its proposed interpretive guidance, including whether the proposed guidance has accurately identified the industry practices for which guidance would be most useful, and whether the guidance would significantly affect the level and distribution of costs among industry participants and, if so, whether these effects would be beneficial to investors or otherwise serve the public interest.