Trio of SEC No-Action Letters Addresses Concerns Raised by Decoupling of Research and Commission Payments Under MiFID II

The recast Markets in Financial Instruments Directive (MiFID II), which takes effect on January 3, 2018, requires the decoupling of payments for broker research from execution services. Money managers, broker-dealers and other market participants have been concerned, however, that complying with these MiFID II provisions could lead to them being out of compliance with U.S. securities laws and regulations. Specifically, (1) broker-dealers are concerned that if they receive payments earmarked specifically for research, they may be deemed to be acting as investment advisers; (2) money managers are concerned that use of a research payment account in accordance with MiFID II would not satisfy the safe harbor for bundled commissions under Section 28(e) of the Securities Exchange Act of 1934; and (3) investment advisers are concerned that they will no longer be able to aggregate orders for registered investment companies with those of other clients. The SEC recently issued three no-action letters that allay the above concerns. This article analyzes the relief provided in each of those letters, along with the applicable rationale. For more on these issues, see MiFID II May Have Significant Ramifications on Research Payments Involving U.S. Managers With Cross-Border Operations” (Jul. 27, 2017).

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