Soft Dollars, Hard Choices: Reconciling US and EU Policies on Sell-Side Research

32 Pages Posted: 16 Dec 2019

See all articles by Paul G. Mahoney

Paul G. Mahoney

University of Virginia School of Law

Date Written: December 13, 2019

Abstract

Investors use research provided by broker-dealers, also known as sell-side research, to help formulate trading ideas and strategies. Investors normally pay for sell-side research through brokerage commissions. Recent European Union regulations require some institutional investment managers to unbundle, or pay separately for research and trade execution. Unbundling might subject a U.S. broker-dealer to regulation under the Investment Advisers Act of 1940, significantly affecting the broker’s business practices. The Securities and Exchange Commission provided temporary no-action relief to avoid potential conflicts between U.S. and EU law while it considers whether to engage in rulemaking on the issue. The outcome could have a substantial effect on the quality of the securities markets. This article argues that investors should have the option to bundle or unbundle payment for sell-side research without affecting the broker’s regulatory status and suggests ways to achieve that outcome.

Keywords: Soft-dollar brokerage, sell-side research

JEL Classification: G24, G28, K23

Suggested Citation

Mahoney, Paul G., Soft Dollars, Hard Choices: Reconciling US and EU Policies on Sell-Side Research (December 13, 2019). Virginia Law and Economics Research Paper No. 2019-21, Available at SSRN: https://ssrn.com/abstract=3503673

Paul G. Mahoney (Contact Author)

University of Virginia School of Law ( email )

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Charlottesville, VA 22903
United States
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