This letter’s temporary position on adviser status expired on July 3, 2023, in accordance with its own terms. Statements or positions that are independent of the temporary adviser status position are not expired.
Please consult the following web page for more information: https://www.sec.gov/divisions/investment/im-modified-withdrawn-staff-statements.

Investment Advisers Act of 1940 - Section 202(a)(11)

November 4, 2019

Chief Counsel’s Office
Division of Investment Management

In a letter to you dated October 26, 2017,[1] the staff of the Division of Investment Management provided a temporary no-action letter under the Investment Advisers Act of 1940 (“Advisers Act”) regarding compliance with the provisions relating to research in the Markets in Financial Instruments Directive II (“MiFID II”) and related implementing rules and regulations (“Temporary No-Action Letter”).[2] In the Temporary No-Action Letter, we stated that our position would expire thirty (30) months from MiFID II’s implementation date, which would be July 3, 2020. We also stated that we might or might not renew the Temporary No-Action Letter as appropriate. For the reasons discussed below, we are extending the Temporary No-Action Letter until July 3, 2023 (the “Extended Period”). During the Extended Period, our position continues to be based on the facts and representations in the Temporary No-Action Letter. The Securities and Exchange Commission (“Commission” or “SEC”) or the staff of the SEC may take further action or issue further guidance regarding MiFID II during the Extended Period.

The time period provided for in the Temporary No-Action Letter was intended to provide the staff and market participants with time to better understand the evolution of business practices after the implementation of MiFID II. Since issuing that letter, we have engaged extensively with market participants, including broker-dealers, investment managers, clients of investment managers, service providers such as administrators of Client Commission Arrangements (“CCAs”), and others. In addition, we have also received letters regarding the impact of MiFID II on the market for research in the U.S. and Europe.[3] We have also been monitoring developments in Europe that could affect business practices under MiFID II.

In the course of this outreach and monitoring, the staff has observed that business practices concerning payments for research, including in response to the requirements of MiFID II, continue to evolve, but various challenges remain.[4] In addition, the staff has observed that understanding of the effects of MiFID II on the supply of and demand for research continues to develop, that market participants continue to express concern regarding the effects of changes in the market for research on small- and mid-sized entities, and that authorities in the European Union (EU) are continuing to evaluate the effects of MiFID II.[5]

As mentioned above and in light of these observations, we are extending the Temporary No-Action Letter. The Extended Period will allow for the staff to continue to monitor and assess the evolving impact of MiFID II and evaluate whether any additional guidance or recommendations to the Commission for regulatory actions are appropriate. It will allow additional time for the EU authorities or regulators in individual member states to continue their evaluation of the effects of MiFID II and potentially modify their rules.[6] Finally, it will allow additional time for market-based solutions with respect to payments for research in the U.S. and Europe to evolve further, and for greater transparency regarding research payments and practices to develop.

Based on the facts and representations in the Temporary No-Action Letter, as supplemented by our observations referenced above, and for the Extended Period, we would not recommend enforcement action to the Commission if a broker-dealer provides research services that constitute investment advice under section 202(a)(11) of the Advisers Act to an investment manager that is required by MiFID II and substantially similar national rules of member states, either directly or by contractual obligation,[7] to pay for the research services from its own money, from a separate research payment account funded with its clients’ money, or a combination of the two (a “Broker-Dealer”). During the Extended Period, we will not consider such Broker-Dealer to be an investment adviser.[8]

This letter represents only the Division of Investment Management’s position on enforcement action and does not purport to express any legal conclusion on the questions presented.[9] Because our position is based upon all of the facts and representations in the Temporary No-Action Letter, any different facts or representations may require a different conclusion.

The statements in this letter represent the views of the Division of Investment Management. This letter is not a rule, regulation or statement of the Commission, and the Commission has neither approved nor disapproved its content. This no-action letter, like all staff guidance, has no legal force or effect; it does not alter or amend applicable law, and it creates no new or additional obligations for any person.