A few weeks ago, global agency broker StoneX sponsored a webinar about the likely research payment solutions once the SEC’s MiFID II “No Action” letter expires in July. The following article is a review of the feedback received from the attendees of this online webinar.
Online Survey Feedback
On Wednesday, April 5th global agency broker StoneX hosted a webinar to continue discussing the impact of the SEC’s decision not to extend the SIFMA “No Action” relief after July, 2023. The webinar presented a discussion with Stephen Stone, Partner at Morgan Lewis; Gerald Lins, Special Counsel from Eversheds Sutherland; and Michael Mayhew, Chairman, Founder & Global Director of Research at Integrity Research Associates, LLC. An online poll was conducted of attendees during this panel.
Survey Participants
Of the more than 50 live attendees to this panel, approximately 33% worked at buy-side institutions; 56% worked at sell-side firms; and 11% worked at other types of firms.
67% of the panel attendees said that their firms are required to follow MiFID II rules when paying for research; while 33% said their firms were exempt from MiFID II.
Similarly, 67% said they currently use CSAs to pay for research while the remaining 33% say their firms do not use CSAs.
Research Payment Options
When asked how they plan to pay for US broker research after the expiration of the SEC “No Action” letter in July, webinar attendees responded as follows:
| Payment Options | % |
| CSAs | 14.3% |
| RPAs | 0 |
| P&L Payments to EU Subsidiaries of US Brokers | 14.3% |
| P&L Payments to RIA Subsidiaries of US Brokers | 0 |
| Combination | 57.1% |
| Not Sure | 14.3% |
| Other | 0 |
A significant majority of those who attended the online panel (85.7%) do not expect the SEC to come up with some new regulatory solution to enable EU asset managers to pay US brokers for the provision of their research. 7.1% do expect the SEC to come up with a solution while another 7.1% said they don’t know whether the SEC will come up with another solution.
A minority of those who participated in the online panel (5.6%) believe that US investment banks will register as RIAs to enable EU asset managers to pay them with hard dollars to pay for their research. A majority (72.2%) do not believe investment banks will register as RIAs, and another 22.2% are not sure what US investment banks will do.
There was considerable disagreement whether US brokers would accept RPA payments funded with transactions to pay for their research. 31.6% of those polled said US brokers would accept these payments; 3.8% said US brokers would not; and, 31.6% said they were not sure.
A surprising finding of our poll was that despite the warnings provided by the panelists, an overwhelming majority (68.8%) still expect EU asset managers to pay the EU subsidiaries of US brokers for the research these firms produced in the US. 18.8% of those surveyed don’t expect EU asset managers will pay US brokers this way, while 12.5% aren’t sure.
It was particularly interesting that a majority of survey participants (63.6%) concluded that paying the EU subsidiaries of US brokers for their research would lead to further consolidation of the research industry with global brokers gaining market share. 9.1% said this would benefit IRPs that cover US stocks while a similar amount thought it would benefit European brokers that cover US stocks. 18.2% thought this approach to paying for US broker research would not impact the research market very much.
Despite their previous views, a majority of those who attended this live webinar (58.3%) expect that EU asset managers will end up using client commissions to pay for US broker research, and they will rebate clients for the commissions used to pay for this research. 16.7% do not believe EU asset managers will adopt this approach to pay for US broker research, while 25% said they were not sure whether EU asset managers would use this payment method.
Our Take
The feedback provided by the participants who attended the April 5th live StoneX panel on SEC “No Action” Relief for MiFID II Clients to End revealed continued uncertainty and confusion about how most EU asset managers were likely to pay for US broker research.
However, this may be a moot point as EU regulators have recently started signaling that they may create a narrow exemption to MiFID II by allowing EU asset managers to use client commissions to pay US brokers for their research. It will be interesting to see exactly what the EU regulators decide to do, and how the EU asset management industry chooses to pay their US investment bank research counterparties.