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SEC issues guidance on unbundling of research, execution costs

U.S. money managers will be allowed to unbundle research and execution costs and not violate their fiduciary duty under guidance issued Thursday by the Securities and Exchange Commission.

The no-action relief from the SEC averted what would have been a conflict between U.S. rules that allow for bundling of research and European rules under the Markets in Financial Instruments Directive II, effective Jan. 3, that require unbundling of research and execution costs.

The SEC also said brokers for 30 months would temporarily be allowed to receive research payments from managers in hard dollars, and managers could continue to aggregate orders from mutual funds and other clients.

The SEC in a news release said the move "facilitates compliance with the new MiFID II research provisions while respecting the existing U.S. regulatory structure" and gives SEC staff time "to better understand the evolution of business practices after implementation of the MiFID II research provisions."

"Today's no-action relief was designed with input from a range of market participants to reduce confusion and operational difficulties that might arise in the transition to MiFID II's research provisions," said SEC Chairman Jay Clayton in a news release. "Staff's letters take a measured approach in an area where the European Union has mandated a change in the scope of accepted practice, and accommodate that change without substantially altering the U.S. regulatory approach."