US - After years of regulatory scrutiny, the soft dollar business seems to have stabilised in terms of the proportion of US institutions involved and total dollar volume, according to Greenwich Associates.
The latest research by the company showed the the total amount of soft-dollar commissions used to purchase third-party equity research and services remained constant, between 2005 and 2006, at estimated $970m.
US institutions expect that level to hold for the coming 12 months, said Greenwich Associates. The proportion of US institutions using soft dollars was also flat at 73% over the 12-month period.
The new Greenwich report showed that currently, long-only asset managers and banks are the most active users of soft dollars, with between 83% and 87% reporting that they employ soft-dollar arrangements.
Hedge funds are the least likely to use soft dollars with only 57% doing so and the share of mutual funds reporting soft dollar usage fell from three-quarters in 2005 to 65% in 2006.
This was probably out of caution due to close regulatory scrutiny, according to Greenwich Associates consultant Jay Bennett.
Soft dollars are most commonly used to purchase financial market quote services, financial databases and third-party research. On the other hand, institutions are more likely to pay hard dollars for news subscriptions and publications, security master records databases, order management systems and portfolio analysis and models. By Angele Spiteri Paris
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