SEC Division of Investment Management staff letter: Securities Industry and Financial Markets Association

Steven W. Stone
Partner
+1.202.739.5453 steve.stone@morganlewis.com
Douglas J. Scheidt
Associate Director and Chief Counsel
United States Securities and Exchange Commission 100 F Street NE Washington, DC 20549 Re: Relief from the Investment Advisers Act of 1940 for Broker-Dealers Receiving Payments for Research from Investment Managers Subject to MiFID II Dear Mr. Scheidt:
On behalf of the Securities Industry and Financial Markets Association (“SIFMA”),1 we request that the staff of the Division of Investment Management confirm that it will not recommend that the Securities and Exchange Commission (“SEC”) take enforcement action under the Investment Advisers Act of 1940 (“Advisers Act”) against certain broker-dealers that provide research services that constitute investment advice under Section 202(a)(11) to an investment manager that is required under the Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU, as implemented by the European Union (“EU”) member states (“MiFID II”),2 either directly or by contractual obligation, to pay for the research services from its own money,3 from a research payment account (“RPA”) funded with its clients’ money, or a combination of the two. Specifically, the requested relief would cover broker-dealers that are registered with the SEC and certain foreign broker-dealers that are not registered with the SEC and are exempt from registration pursuant to Rule 15a-6 under the Securities Exchange Act of 1934 1 SIFMA is the voice of the U.S. securities industry. SIFMA represents the broker-dealers, banks, and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets, and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association. For more information, visit http://www.sifma.org. 2 Directive 2014/65, of the European Parliament and of the Council of 15 May 2014 on Markets in Financial Instruments and Amending Commission Directive 2002/92 and Council Directive 2011/61, O.J. (L 173) 57, 349, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L:2014:173:TOC. 3 An investment manager may delegate portfolio management to a non-EU domiciled investment manager and contractually require that manager to comply with MiFID II or equivalent protections (e.g., setting research budgets, accounting for research inputs, and having systems and controls to ensure that the receipt of research does not give rise to certain conflicts of interest). See Letter from Stephen Hanks, Financial Conduct Authority, to Jiri Krol, Deputy CEO, Alternative Investment Management Ass’n (July 19, 2017). Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004 +1.202.739.3000 United States +1.202.739.3001