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SEC Issues Letters Regarding MiFID II's Research Provisions
Traders Magazine Online News, October 30, 2017
The Securities and Exchange Commission (SEC) is making a statement – on the upcoming MiFID II regime set to take place next year.
The U.S.’ leading financial market regulator, in concern with European authorities, and in response to concerns that investors could lose access to valuable research, has issued three related no-action letters. These letters are designed to provide market participants with greater certainty regarding their U.S. regulated activities as they engage in efforts to comply with the European Union’s (EU) Markets in Financial Instruments Directive (MiFID II) in advance of the Jan. 3, 2018, implementation date.
The no-action relief provides a path for market participants to comply with the research requirements of MiFID II in a manner that is consistent with the U.S. federal securities laws. More specifically, and subject to various terms and conditions: (1) broker-dealers, on a temporary basis, may receive research payments from money managers in hard dollars or from advisory clients' research payment accounts; (2) money managers may continue to aggregate orders for mutual funds and other clients; and (3) money managers may continue to rely on an existing safe harbor when paying broker-dealers for research and brokerage.
"Today's no-action relief was designed with input from a range of market participants to reduce confusion and operational difficulties that might arise in the transition to MiFID II's research provisions," said SEC Chairman Jay Clayton in a statement. "Staff's letters take a measured approach in an area where the EU has mandated a change in the scope of accepted practice, and accommodate that change without substantially altering the U.S. regulatory approach. These steps should preserve investor access to research in the near term, during which the Commission can assess the need for any further action. Cooperation with European authorities, including the European Commission, has been instrumental to the SEC's efforts, and I welcome the additional guidance the EC published today. We look forward to continued dialogue on this and other important issues."
The temporary no-action relief facilitates compliance with the new MiFID II research provisions while respecting the existing U.S. regulatory structure. It also is intended to provide the staff with sufficient time to better understand the evolution of business practices after implementation of the MiFID II research provisions. During the period of the temporary relief, the staff will monitor and assess the impact of MiFID II's research provisions on the research marketplace and affected participants in order to determine whether more tailored or different action, including rulemaking, is necessary and appropriate in the public interest.
“The three no-action letters issued by the SEC today allows US and European firms to continue to do cross-border business without fear of violating either jurisdiction’s regulations,” said Adam Sussman, Global Head of Market Structure at Liquidnet. “The 30-month temporary no-action relief for broker-dealers allows the US industry to have its own healthy debate over any needed changes to the structure and payment mechanisms of the research business.”
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