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.

Paul G. Mahoney, Soft Dollars, Hard Choices: Reconciling U.S. and E.U. Policies on Sell-Side Research, 75 Business Lawyer, 2173–2199 (2020).