MiFID II – SEC gives US firms time to meet Research Rules

The U.S. Securities and Exchange Commission (SEC) has said it would grant Wall Street a 30 month-grace period that will allow them to comply with sweeping new European Union investment research rules without overhauling their operations.

Under MiFID II, brokers will have to charge separately for research, instead of bundling the fees together with other services, such as trading. These new rules are aimed to eliminate conflicts of interest by giving investors greater transparency over how much they pay banks for discrete services.

EU regulators say this will incentivise brokers to produce better quality research and allow investors to execute trades with banks that offer the best price.

Many global U.S. brokers servicing European clients will need to comply with the EU rules, but are technically barred from doing so due to a quirk of U.S. federal securities law. This sparked concerns that U.S. brokers would have to overhaul their operations to continue serving European clients, or EU investors would lose access to valuable U.S. research.

The SEC has now issued three so-called ‘no action relief letters that will allow U.S. market participants to comply with the rules in a way that is consistent with U.S. law, the regulator said.

The letters were drawn up following discussion with the EU and will allow the SEC more time to assess how, if at all, it can reconcile its rules with MiFID II

“No-action relief was designed…to reduce confusion and operational difficulties that might arise in the transition to MiFID II’s research provisions,” SEC Chairman Jay Clayton said in a statement

Because U.S. and EU firms are the biggest participants in each others’ markets, MiFID II as caused a slew of cross-border compliance issues for U.S. firms and trading platforms across a range of asset classes.

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