The SEC today proposed guidance to narrow the definition of research services available to money managers through soft dollars under Section 28(e) of the Securities Exchange Act of 1934 to "advice, analysis and reports that have intellectual content." Robert Colby, acting director of the SEC's division of market regulation, said the guidance is an effort to curb the use of soft dollars to pay for research of "dubious informational value" to money managers.
Computers and hardware would not be considered research, but market data services such as Bloomberg terminals and services analyzing trades would be permitted under the definition. Money managers would be expected to disclose and document mixed-use research products and services.
The SEC also left open the possibility of treating some seminars as research, depending on the subject, although travel and hotel expenses for the seminars would be excluded.
Only those brokerage services from the time of execution of a trade to delivery of the securities to the money managers would be protected under Section 28(e).
But the SEC punted on determining if mass-market publications should be excluded because officials couldn't agree on whether they should be treated as office overhead, much in the way that dentists' offices regard magazines, Mr. Colby said. "Users will have to continue to determine whether the publications they use are within the scope of the safe harbor," he said.
The guidance also reiterated the SEC's earlier interpretation that money managers must make a good-faith determination of the reasonableness of commissions paid to obtain the research products or services.
The guidance is open for a 30-day public comment period. The SEC intends to follow up the guidance by proposing a regulation shortly afterward on the disclosure and record-keeping requirements of soft-dollar arrangements by money managers.
