On Dec. 11, the Commodity Futures Trading Commission's Division of Swap Dealer and Intermediary Oversight issued interpretative guidance addressing an important compliance issue for U.S. brokers and market participants that do business with investment managers in Europe.
Starting on Jan. 3, investment managers subject to MiFID II will be required to unbundle their payments for investment research services from their payments for execution services. This raised a question as to whether the CFTC would view the receipt of separate compensation for research services as triggering the need for a firm to register as a commodity trading advisor even if that firm were already registered in another capacity.
The Dec. 11 guidance, which was requested by FIA on behalf of its members, provides that a futures commission merchant, swap dealer or introducing broker that receives separate compensation for commodity trading advice is not required to register as a commodity trading advisor, provided that the offered advice is “solely incidental” to the conduct of the FCM’s or SD’s business, or “solely in connection with” the operation of the IB’s business.
In effect, the guidance preserves the availability of these exemptions for CFTC registrants that have to charge their clients in a manner consistent with the MiFID II unbundling rules. The CFTC's action follows a similar action by the Securities and Exchange Commission in October that provided comparable relief for broker-dealers operating in securities markets.