Carter works for Invest Today, a local asset management firm. A broker that provides Carter with proprietary research through client brokerage arrangements is offering a new trading service. The broker is offering low-fee, execution-only trades to complement its traditional full-service, execution-andresearch trades. To entice Carter and other asset managers to send additional
business its way, the broker will apply the commissions paid on the new service toward satisfying the brokerage commitment of the prior full-service arrangements. Carter has always been satisfied with the execution provided on the fullservice trades, and the new low-fee trades are comparable to the fees of other brokers currently used for the accounts that prohibit soft dollar arrangements.
A Carter can trade for his accounts that prohibit soft dollar arrangements under the new low-fee trading scheme.
B Carter cannot use the new trading scheme because the commissions are prohibited by the soft dollar restrictions of the accounts.
C Carter should trade only through the new low-fee scheme and should increase his trading volume to meet his required commission commitment.
Answer A is correct. Why? Aren’t those accounts prohibiting soft dollar in the first place? If an account prohibits the use of soft dollar, irregardless of how well it would fare in terms of fees, you are still not allowed to do it, are you? Thanks a lot!