Soft dollars

September 2022

Soft dollar brokerage, which uses commission dollars to subsidize research-related costs, can serve as a valuable asset to an investor. Soft dollars may advance a variety of research aims; however, the opacity surrounding soft dollar arrangements has been subject to widespread criticism. Recently established transparency requirements call for improved due diligence practices that optimize soft dollar arrangements.

This paper will examine the potential benefits and risks of soft dollars and will seek to identify how soft-dollar practices can adjust to the trading industry’s growing commitment to investment transparency.