On 26 October 2017, the SEC issued guidance to address certain extraterritorial issues under MiFID II, Europe's new financial regulation for investment business, which came into effect on 3 January 2018. One of MiFID II's aims is to give investors transparency into the cost of both research and trading commissions, by requiring payments for these elements to be unbundled.
In particular, the Staff of the SEC's Division of Corporation Finance (the "Staff") issued three no-action letters, designed to address concerns from U.S. broker-dealers and investment advisers regarding their need to charge for research in the manner required by their European clients under MiFID II. The Staff stated that they would grant relief under the following circumstances:
- The Staff would not recommend enforcement actions against an investment adviser that aggregates orders for the sale or purchase of securities on behalf of its clients in reliance on the position taken in the prior no-action letter for SMC Capital1 while accommodating the differing arrangements regarding the payment for research that are required by MiFID II.
- The Staff will not recommend enforcement action if a broker-dealer provides research services that constitute "investment advice" under section 202(a)(11) of the Investment Advisers Act to an investment manager that is required to pay for the research services by using research payments under MiFID II. The relief is time limited to 30 months from MiFID II's implementation on 3 January 2018.
- The Staff will not recommend enforcement action against a money manager seeking to operate in reliance on Section 28(e) of the Exchange Act if it pays for research through the use of a "Research Payment Account" and conforms to the requirements for "Research Payment Account" in MiFID II, provided that all other applicable conditions of Section 28(e) are met.
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