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.

Creating further uncertainty, SEC Chair Gary Gensler has now "doubled down" in the July 2022 SEC staff notification to the market about the expiry of the letter, by saying to reporters on May 6, 2023, "The staff shared with the markets last summer and fall that that [relief] will end July 3". [6]

It remains to be seen if and when the law will officially be enacted and how the recent remarks by SEC Chair Gensler will impact this process. Consequently, it's very difficult to predict how this situation will be resolved and how it will impact global investment managers who pay for US investment research from July 3 onwards.

S&P Global Market Intelligence have been actively engaging with the SEC in an 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 investment managers to manage 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 US 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 US broker-dealer research, further solidifying our position on CSAs. The SEC also made it clear that after the expiry, "direct charge" RPAs and investment 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 investment 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-Action Letter (October 26, 2017)

[2] 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)

[6] Gary Gensler, remarks to reporters. Politico - (June 7, 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.