SEC Division of Trading and Markets no-action letter: Securities Industry and Financial Markets Association, Asset Management Group

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UNITED STATES
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WASHINGTON, DC 20549
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  DIVISION OF ^/
  TRADING AND MARKETS October 26~ 201 /
  Timothy W. Cameron
  Lindsey Weber Keljo
  Asset Management Group
  Securities Industry and Financial Markets Association 1101 New York Avenue, NW, 8th Floor Washington, DC 20005 Re: Section 28(e) of the Securities Exchange Act of 1934 and MiFID II Dear Mr. Cameron and Ms. Keljo, In your letter dated October 25, 2017, you seek assurances from the staff of the Division of Trading and Markets ("Staff') that it will not recommend enforcement action to the Securities and Exchange Commission ("Commission") if a money manager pays for research through the use of research payment accounts ("RPAs"), as described in your letter, in reliance on the safe harbor of Section 28(e) of the Securities Exchange Act of 1934 ("Exchange Act"). You request such relief in connection with practices designed to comply with the. implementation of 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 ("MiFID II"), I which takes effect on January 3, 2018. As you describe in your letter, you are seeking relief only under the circumstance where a money manager uses client assets to make payments through an RPA for research alongside payments for execution services.2
  I. Background
  As you state in your letter, the relevant provisions of MiFID II will, among other things, prohibit certain money managers from receiving "inducements" from third parties in connection with providing any investment or ancillary service to a client. Under MiFID II, an "inducement" can include a money manager's receipt of research from the executing broker-dealer, among others. You state in your letter that under MiFID II, the European Commission will permit money managers to pay for research from an RPA which is funded by client assets.3 In your letter, you describe how money managers in the U.S. often rely on a client commission arrangement ("CCA") structure to pay a single "bundled" commission to broker￾dealers for order execution as well as Section 28(e) eligible brokerage and research services. European Council Directive 2014/65/EU, O.J. (L 173) 57, 349. 2 This relief is intended to address concerns that have arisen in light of the adoption of MiFID II while preserving choice in maintaining the Commission's long-standing approach to arrangements under Section 28(e). Commission Delegated Directive 2017/593, art. 13.1(b), O.J. (L 87) 60, 500 (EC).