In response to a no-action request submitted by Goldman Sachs & Co. the staff of the Securities and Exchange Commission advised that it would not recommend enforcement action if providers of research services, within the safe harbor of Securities Exchange Act Section 28(e), were paid out of a commission pool and did not register as a broker-dealers. Each money manager would direct Goldman Sachs to credit commissions it generated to a separate pool. Goldman Sachs would pay out of that pool dollar amounts specified by the money manager to a research provider as directed by the money manager. This could be construed as the research provider receiving compensation related to securities transactions and require broker-dealer registration under current no-action letters. However, the staff took a no-action position, and conditioned it essentially on compliance with previously issued soft dollar guidelines. These include:

  • the money manager is responsible for independently determining the value of the research services in accordance with its good faith determination under Section 28(e) (such determination may be based on input from the service provider);
  • Goldman Sachs is not involved in determining the value of the research services to the money manager;
  • the service provider receives payment for research servicesfrom a pool of commissions that, by agreement betweenGoldman Sachs and the money manager, Goldman Sachs hasset aside for obtaining the research services;
  • payment to the service provider is not conditioned, directly orindirectly, on the execution of any particular transaction ortransactions in securities that are described or analyzed in theresearch services; and
  • the service provider provides the research services in return forpayment from a pool of commissions, but does not performother functions that are typically characteristic of broker-dealer activity (e.g., solicit brokerage transactions, accept customerorders, hold customer accounts, hold customer funds or effectsecurities transactions).

http://www.sec.gov/divisions/marketreg/mr-noaction/2007/goldmansachs011707-15a.pdf