SEC Extends ‘No-Action Relief’ on MiFID II: Greater Flexibility in Acquiring Research Encourages CSAs

In extending its no-action relief, the SEC provided much-needed clarity for U.S. broker-dealers regarding the receipt of cash payments for research from asset managers subject to MiFID II regulations, while also providing for flexibility in how the buy side pays for research. The SEC decision reinforces the use of commission sharing agreements, or CSAs, which encourage access to a robust array of research and help promote a healthier and more vibrant investment ecosystem.

The U.S. Securities and Exchange Commission (SEC), as expected, extended its no-action relief to the Securities Industry and Financial Markets Association (SIFMA), originally granted in October 2017, for a period of three years until July 3, 2023, while the SEC continues to study the impact of the European Commission’s Delegated Acts for the Markets in Financial Instruments Directive (MiFID II). Importantly, the SEC decision reinforces the use of commission sharing agreements, or CSAs. [CSAs are also referred to as client commission arrangements (CCAs), including in the SEC decision.]

The SEC also stated that, under the extension, broker-dealers are able to receive payments for research under section 28(e) of the Securities Exchange Act of 1934 through client commission arrangements (CCAs), “including that the use of CCAs does not affect whether the exclusion for broker-dealers from the definition of ‘investment adviser’ under the Advisers Act may be available.” [, “SEC Announces Extension of Temporary Measure to Facilitate Cross-Border Implementation of the European Union's MiFID II's Research Provisions,” Nov. 4, 2019.]

We welcome this decision by the SEC as it provides both certainty and more flexibility for the U.S. financial industry, while supporting the spirit of MiFID II and its rules on “unbundling” decisions around trade execution and the acquisition and valuation of research.

In announcing the decision, SEC Chairman Jay Clayton said:

“Today’s extension of the staff’s no-action letter is an important step in our continued efforts to address changes in the market for research payments driven by MiFID II with an eye toward preserving investor access to research to the maximum extent possible. The impacts of MiFID II are evolving, as EU authorities and regulators in individual EU member states evaluate its effects and consider whether to modify their rules. Today’s extension will allow our staff to continue to monitor the evolving impact of MiFID II and evaluate whether any additional guidance or Commission action is appropriate. In this regard, our staff is focused on ensuring that market participants have flexibility and choice in how they pay for research.”

As we discussed in our September 2019 article, MiFID II was implemented in January 2018 with the goals of providing visibility into the trade execution and research valuation processes, as well as creating a healthier, more transparent marketplace. With the SEC’s no-action relief now being extended, there is greater clarity for U.S. broker-dealers regarding the receipt of cash payments for research from asset managers subject to MiFID II regulations.

Unbundling Does Not Automatically Mean Paying for Research

Importantly, the SEC did not expand the relief to apply to managers that are not subject to MiFID II. This is significant because it recognizes that unbundling trade execution and research acquisition through the use of CSAs accomplishes many of the goals of MiFID II while not compelling managers to pay for research from their P&L, as interpreted in Europe under MiFID II. Rather, the SEC is allowing for more flexibility in how research is paid for and encouraging the use of CSAs to pay for research from multiple sources.

By encouraging access to a robust array of research and timely inputs, CSAs help promote a healthier and more vibrant investment ecosystem in the United States. This includes more research into middle-market and smaller companies that are an integral part of the U.S. economy. Cowen Inc. (“Cowen”) recognizes the importance of growing companies in developing sectors and is dedicated to serving the middle market.

Best Practices for Greater Transparency

As we move forward, U.S. asset managers need to implement best practices to promote greater transparency and support the spirit of MiFID II and its unbundling requirements. These practices include:

  • Having a thorough, defensible process around research valuation and consumption.
  • Unbundling the trade execution decision from the research decision via the use of CSAs.
  • Providing transparent reporting of research funding, consumption, and value to asset owners and regulators.
  • Ensuring that the interests of managers and asset owners are aligned. Managers need to articulate how their research spending patterns, approaches to investing, and enhanced reporting processes are consistent with asset owners’ expectations.

As a FINRA-registered broker-dealer, Westminster Research Associates (“Westminster”), which is owned by Cowen, provides CSAs and commission management solutions to U.S. investors, as well as a MiFID II-compliant solution to our UK-based clients. To promote and support greater transparency, Westminster continues to invest in our reporting and analytics capabilities. Last month, we launched a new client interface with enhanced features to better serve our clients. We offer a high-touch, technologically advanced solution that seamlessly combines research acquisition, valuation, and reporting.

Going forward, we believe that the SEC decision sets the stage for greater use of client commissions, and CSAs in particular, to pay for research. The result will be support for several important goals that are integral to the health of the investment ecosystem: increased flexibility and greater transparency in the research acquisition and valuation processes; a more level playing field between large and small investment managers; better performance by managers on behalf of clients through access to robust research; and a capital formation process that encourages small and mid-size companies, which are the lifeblood of the U.S. economy.

About Cowen

Cowen Inc. (“Cowen” or the “Company”) is a diversified financial services firm offering investment banking services, equity and credit research, sales and trading, prime brokerage, global clearing, commission management services and actively managed alternative investment products. Cowen focuses on delivering value-added capabilities to our clients in order to help them outperform. Founded in 1918, the Company is headquartered in New York and has offices worldwide. Commission management services are provided by Westminster Research Associates LLC (member FINRA/SIPC). Westminster RPA is a service mark of Westminster Research Associates LLC.  Learn more at

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