The SEC has said that today, staff from the Division of Investment Management and the Division of Trading and Markets issued a series of no-action letters related to the research payment provisions in the Council of the European Union’s Markets in Financial Instruments Directive (“MiFID II”). MiFID II will give investors transparency into the cost of both research and trading commissions by requiring that payments be unbundled. Bundling of payments is a common practice in the United States and thus, Europe’s new approach creates a conflict for certain global firms.
Questions about transparency and investor protection are central to this conflict. When payments for research and trading are combined, do investors know that they are paying for research? Do investors know what they are paying for trading? Do investors know of the potential conflicts of bundled payments?
The staff’s no-action relief does not adequately address these issues and merely kicks the can down the road. This inaction may be costly to investors and advantage some market participants over others. While a time-limited approach may allow the staff to study the impact of MiFID II, taking over 900 days is simply unreasonable.
Transparency and disclosure are vital to our capital markets. Transparency in government process is equally important. It is critical that investors and other market participants have an opportunity to voice their concerns and ideas. I encourage the staff and the Commission to consider timely notice and comment rulemaking in order to reach the best policy outcome in this area.
The decision has received a warm welcome with Chris Turnbull, co-founder of ERIC (Electronic Research Interchange) saying: “The SEC’s No-Action Relief is a welcome move. It provides the certainty global financial institutions need to make their final arrangements for MiFID II research unbundling.
“Arranged through extensive cooperation with the European Commission, these clarifications ensure regulatory harmony while supporting an agenda which should ultimately improve research quality.
“This change has been made with a clear focus on investors’ best interests. While the relief is temporary, we expect solutions that enable firms to access research which benefits their clients – no matter the source – will be maintained.”
Patrick Shea, Head of Global Compliance at Cordium, also said: “The three no-action letters issued today by the SEC, following consultation with EU regulators, will enable some US registered broker dealers and money managers to breathe a sigh of relief when it comes to managing the unbundling of research. Although the investment management industry expected that the relief would come, the release of the no action letters provides certainty as firms with US regulated activities and an EU nexus confirm MiFID II readiness. MiFID II is a complex piece of regulation with a broad scope, and firms must ensure that they have closely explored all aspects and assessed relevant impact in order to feel confident that they will be compliant come January 3 2018.”
 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on Markets in Financial Instruments and Amending Commission Directive 2002/92/EC and Council Directive 2011/61/EU, O.J. (L 173) 57, 349, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0065 .
 See Steven T. Mnuchin & Craig S. Phillips, U.S. Dep’t of the Treasury, A Financial System That Creates Economic Opportunities: Capital Markets 219 (Oct. 2017), available athttps://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf (“Treasury recommends that the CFTC and the SEC take steps to ensure that guidance is not being used excessively or unjustifiably to make substantive changes to rules without going through the notice and comment process.”).