CCO Resource Center: Soft Dollar and Commission Sharing Arrangement Policies

Chief Compliance Officer Committee

Soft Dollar and Commission Sharing Arrangement Policies

Fiduciary principals require money managers to seek best execution for client trades and restrict them from using client assets for their own benefit. Recognizing the value of research in managing client assets, however, Congress enacted Section 28(e) of the Securities Exchange Act of 1934 as a safe harbor to protect money managers from breach of fiduciary duty claims when they use client funds to pay more than the lowest commission rate to receive “brokerage and research services” from a broker-dealer.

The commissions paid to acquire research services in these arrangements are called “soft dollar” payments, as opposed to direct payments for the research services or “hard dollar” payments.

Certain money managers also may request that broker-dealers that execute client transactions allocate a portion of the commissions paid to a pool that the money manager may use to pay for third-party research products and services. These arrangements are called “commission sharing arrangements.”

In relying on the Section 28(e) safe harbor, money managers must determine in good faith that the amount of the commission is reasonable in relation to the value of broker-dealers’ brokerage and research services. The SEC has issued several releases interpreting the Section 28(e) safe harbor. See, e.g., Commission Guidance Regarding Client Commission Practices Under Section 28(e) of the Securities Exchange Act of 1934, Securities Exchange Act Rel. No. 54165 (July 18, 2006), available at https://www.sec.gov/files/rules/interp/2006/34-54165.pdf.

In April 2024, a member requested that ICI collect the policies and procedures members use to govern their soft dollar and commission sharing arrangements. Below is a link to those policies and procedures. As with all of our resources, we have made every effort to redact any identifying or proprietary information from these documents. Please do not share this document with anyone outside of your member firm. As we receive additional soft dollar and/or commission sharing policies/procedures, we will add them to this compilation.

• Soft Dollar and Commission Sharing Arrangement Policies (pdf)

The documentation provided by ICI that may be accessed by the CCO Committee members is restricted to members’ use only and not for distribution or reproduction. Documentation may be used internally at member organizations as needed.