With a decision on the use of soft dollars imminent, the industry is pondering how the Securities and Exchange Commission will rule on the controversial issue. SEC Chairman William Donaldson has stated that he would like to see parity between independent research and proprietary research.

While most observers say an outright ban on soft dollars is unlikely, restrictions are anticipated. "There is going to be a narrowing of the definition of what research really means," says Stephen Schardin, president of Charles River Brokerage, a Burlington, Mass.-based brokerage subsidiary of Charles River Development that was set up in November so buy-side customers could pay for the Charles River order management system with soft dollars. Schardin adds that he believes the SEC is going to outline certain items that will not be permitted under the research umbrella, such as T1 lines or terminals, even if they are attached to a service with research value.

"The SEC hasn't given much color on what it will be doing, other than repeating that disclosure is going to be the cornerstone of what they're going to come out with," says John Meserve, president of independent research provider BNY JayWalk, a subsidiary of The Bank of New York.

"People who are [using soft dollars to pay for] research are still paying four or five cents. In that case, we would be able to calculate a soft-research credit on those trades," notes Brian O'Day, managing director at eXGEN Securities, a New York-based institutional agency broker.

"We think [soft-dollar spending] should be disclosed all the way through the process," he adds.