SEC Staff Extends MiFID II Relief for U.S. Broker-Dealers Accepting Cash Payments for Research

November 05, 2019

The U.S. SEC’s Division of Investment Management (Staff) has extended, until July 3, 2023, its 2017 temporary no-action letter (2017 NAL) regarding the “investment adviser” status of certain broker-dealers that accept cash payments for research. Specifically, the 2017 NAL provided that the staff would not recommend enforcement action to the SEC under the Investment Advisers Act of 1940 against broker-dealers receiving payments in hard dollars or through research payment accounts from investment managers that are required under the Markets in Financial Instruments Directive II (MiFID II), directly or by contract, to pay for research services from their own money. The original no-action letter was scheduled to expire on July 3, 2020.

Yesterday’s no-action letter (2019 NAL, and together with the 2017 NAL, No-Action Relief) clarifies that broker-dealers can rely on the No-Action Relief when accepting payments through client commission arrangements (CCAs) from money managers that (i) do not have a trading relationship with the broker-dealer receiving the commission payments for research, or (ii) has a trading relationship with the broker-dealer, but the trades do not relate to the broker-dealer’s research. In providing this guidance, the Staff noted that the SEC was aware of these practices when it issued its 2006 guidance regarding soft dollar arrangements.

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