Soft Dollar Brokerage

Soft dollar brokerage, or simply soft dollars, is an arrangement in which brokerage firms offer institutional investors products and services other than the execution of trades. Institutional investors, such as mutual funds and pension funds, pay a commission to brokerage firms to execute trades of securities. In addition to executing trades, brokerage firms offer some institutional investors credits for other products and services, most commonly proprietary research. These products and services, which are typically provided by a third party, such as research firms, are paid for by the brokerage firm. The credits for these products and service are called soft dollars.

This arrangement began in the 1950s with the growth of institutional investors during a period of fixed commissions for securities traded on the New York ...