New Canadian Soft Dollar Rules


New York—The Canadian Securities Administrators (CSA) have published a new proposal for regulating the use of so-called “soft dollars” for a 90-day comment period, according to Investment Executive, a Canadian publication for financial advisors. 

According to the article, the previous version the rule, which required disclosure of commissions modeled on the regulations implemented by the Financial Services Authority (FSA) in the UK in 2006, has been materially revised in response to comments.

Comments received in response to the proposed soft dollar regulations, National Instrument 23-102, which were first proposed in July 2006, included:

  • <!–[if !supportLists]–> Concerns that it would be difficult to unbundle the costs in principal transactions where there is no independent pricing mechanism currently; <!–[endif]–>
  • <!–[if !supportLists]–>Protests that the requirements should be harmonized to the greatest extent possible with the U.S. (which currently has not commission disclosure requirements) in preference to the U.K.;<!–[endif]–>
  • <!–[if !supportLists]–>Complaints that the proposed disclosure requirements would be difficult to meet and may not be useful to many clients; and,
  • <!–[if !supportLists]–>Suggestions that a transition period should be considered.

In searching the CSA site and other Canadian regulatory sites, no proposed rules are evident.  Perhaps we are missing it, or perhaps the rules were pre-released to the press before being published.  We are inferring from the Investment Executive article that the commission disclosure requirements proposed in 2006 have now been reduced in the latest proposal, but we have not been able to verify this yet.

The other question is whether the CSA release signals that the SEC is ready to release its draft commission disclosure guidelines.  Rumors have been circulating for a few months that the SEC is very close to finalizing its own guidelines.

The Investment Executive article can be viewed at

For reference the original commission disclosure requirements for investment advisors, proposed 7/06 were:

4.1 Disclosure — (1) An adviser that enters into an arrangement where brokerage commissions, or any portion thereof, are used as payment for goods and services other than order execution, must provide to each of its clients on an initial basis and, thereafter, at least annually, disclosure of:

(a) the arrangements entered into relating to the use of brokerage commissions as payment for order execution services or research, including the names of the dealers and third parties that provided order execution services or research under those arrangements, and the types of goods and services provided by each of those dealers and third parties;

(b) the total brokerage commissions paid during the period reported upon, for each class of security, by all accounts or portfolios, and by the particular client’s account or portfolio;

(c) for each of the brokerage commission amounts disclosed under subsection 4.1(b), a reasonable estimate of the percentages paid for:

(i) order execution only trades,

(ii) trades where order execution is bundled with other proprietary services by the dealer(s), and

(iii) trades where a portion of the commission is set aside for payment to third parties, including a breakdown of the fraction of this percentage that represents the amount for third party research, the amount for other third party services and the amount retained by the dealer(s); and

(d) a reasonable estimate of the weighted average brokerage commission per unit of security that corresponds to each of the percentages disclosed in subsections 4.1(c)(i) through (iii).

(2) An adviser must maintain details of each good or service received for which payment was made with brokerage commissions, and make this information available upon request to its clients. These details shall include:

(a) a description of the good or service received;

(b) the name of the dealer who used, or forwarded to a third party, the brokerage commissions as payment for the good or service;

(c) the name of the third-party provider, if any, of the good or service; and

(d) the date the good or service was received.


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