SEC Grants 30-Month Reprieve On MiFID II Research Requirements

Oct 26 2017 | 7:57pm ET

The U.S Securities and Exchange commission has granted a 30-month reprieve to U.S. financial firms from the new research payment requirements set to come into force in early January as part of the EU’s new MiFID II regulations. 

MiFID II imposes a wide range of new requirements on asset managers as well as the brokers and research providers who service them. Effective as of January 3, 2018, the regulations represents the most significant overhaul of European securities trading rules of recent years and changes such things as bundling research with commissions, trade reporting requirements, transparency and best execution accountability. 

The SEC move comes after consultation with European financial regulators. It is aimed at providing an avenue for U.S. companies to comply with the research requirements of MiFID II in a manner that is consistent with the U.S. federal securities laws. 

The SEC has issued three related no-action letters to market participants as part of this effort, saying essentially that on a temporary basis, broker/dealers may receive research payments from money managers in hard dollars or from advisory clients' research payment accounts, money managers may continue to aggregate orders for mutual funds and other clients, and money managers may continue to rely on an existing safe harbor when paying broker-dealers for research and brokerage.

In addition to providing clarity for U.S.-based brokers and money managers, the SEC’s move also provides guidance to EU-based firms about how to deal with non-EU brokerages that provide research. Prior to the extension, many EU buy-side firms were prepping their U.S.-based trading partners to comply with MiFID II’s requirements or risk losing their business. Conversely, without the SEC’s decision, many European asset managers would have lost access to research published by many U.S. banks and brokers. 

Until the extension, U.S. banks, brokers and independent providers were in a quandary, since MiFID II’s unbundling requirements run afoul of current U.S. securities regulations that require any institution providing investment research in return for hard dollars, i.e. separate of trading commissions, be registered as an RIA. 


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