On July 3, 2023, the Securities and Exchange Commission (SEC) was planning to expire its 2017 "no-action" letter to the Securities Industry and Financial Markets Association (SIFMA) [1] [2], which recommended no enforcement action for cash payments for investment research. However, with just over a month before expiration, the House Financial Services Committee has voted 45-2 [3] to approve a bill that calls for a 6-month extension to the letter, despite SIFMA's request for two years. It remains unclear when the law will officially be enacted and how it will impact global asset managers who pay for U.S. investment research.

S&P Global Market Intelligence have been actively engaging with the SEC in our ongoing effort to advocate for the industry. We wrote to them in March 2023 [4], emphasizing the benefits of Commission Sharing Arrangements (CSAs) as a preferred method for asset managers to handle research payments. Encouragingly, recent intelligence gathered from the SEC reaffirms our perspective [5].

The SEC had previously affirmed that CSAs will remain an acceptable payment method for U.S. broker-dealer research [6], regardless of whether the broker-dealer is registered as an Investment Adviser (IA).

During a recent conversation with the SEC, it was further confirmed that the separate October 2017 letter to the Asset Management Group of SIFMA would remain in effect, even in the event of the expiry of the no-action letter itself. Therefore RPAs funded by CSAs will continue to be an acceptable means of payment for all U.S. broker-dealer research, further solidifying our position on CSAs. The SEC also made it clear that after the expiry, "direct charge" RPAs and asset managers using their own money ("P&L") will not be acceptable methods of paying from non-IA registered broker-dealers.

Our engagement with the SEC has reaffirmed the benefits of CSAs as a preferred method for asset managers. We will continue to monitor developments closely and advocate for solutions that promote transparency and efficiency in the industry.

[1] SIFMA, SEC Staff No-A ction Letter (October 26, 2017)

[2] [6] William Birdthistle Director of the Division of Investment Management, SEC, Remarks at PLI: Investment Management 2022 (July 26, 2022)

[3] H.R. 2622, " a bill to amend the Investment Advisers Act of 1940 to codify certain Securities and Exchange Commission no-action letters that exclude brokers and dealers compensated for certain research services from the definition of investment adviser, and for other purposes,"(May 24, 2023)

[4] Letter to William Birdthistle (March 8, 2023)

[5] Anna Sandor, SEC Staff (May 19, 2023)

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.