Minor Non Monetary Benefit scope for Research
The new rules(i) on inducements as set out in the second EU Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID2) require you, our clients, and us (Société Générale (SG)), to determine the boundary between (i) research which must be paid for by in scope clients- and (ii) other information which constitutes a Minor Non Monetary Benefit (MNMB), and which can be freely disseminated.
The purpose of this communication is to set out SG’s current interpretation of the rules relating to MNMB as set out in MiFID2 and supporting legislation/documentation and therefore the rationale given to our staff as to what they may and may not communicate with you. SG will keep its interpretation under review and the content of this communication is subject to further guidance by SG’s regulators.
In addition, we are requested by MiFID2 and the associated MiFID2 delegated directive of 7 April 2016 (the Delegated Directive), to provide a generic description of Minor Non Monetary Benefits that SG will provide to its clients.
Definition of Research
ESMA’s definition of research is “any communication (voice or written) that suggests an investment strategy and contains a substantiated opinion on the present or future value of an asset enters into the scope of research”.[i] This broad definition covers all asset classes and all means of distribution (including for example (but not limited to) email and chat). Therefore it is possible to make a distinction between:
- Research to be paid for by clients - this includes (i) all written material and/or services provided by SG Research Analysts, and (ii) other written material and/or services provided by other SG departments that does not meet ESMA’s definition of a Minor Non Monetary Benefit and
- Free market information that regulators have deemed to be a Minor Non Monetary Benefit .
News, market colour, and data which do not embed a substantiated opinion are excluded from “Research to be paid for by clients” and can be made available to any client.Minor Non Monetary Benefit scope for Research
MNMB scope: SG’s application
The definitions of MNMB are detailed in Article 13 (iii) & Recital 29 (iv) of the MIFID2 Delegated Directive. SG has set out below how it is applying them to its communications:
Provision of MNMB materials to clients from sales and trading desks
- Communications may be considered as MNMB provided certain parameters are respected. In particular SG has made an assessment and come to the conclusion that what constitutes ‘Research to be paid for by clients’ in communications that are issued from outside SG Research is determined by the specificities of any opinions and the context expressed in related communications. SG has therefore imposed constraints on its staff (as set out below) which they are to apply when writing ‘Context and Opinion’ to ensure that such communications can reasonably be considered as MNMB:
- The communication must remain short. A communication with less than 1500 characters is construed as an MNMB.
- Use only the short outlines of Research publications that are construed as MNMB.
- Compilations of various MNMB elements that satisfy the parameters in section (a) above also constitute an MNMB (subject to the constraints set out in Recital 30 of the Delegated Directive).
- Links to SG Research publications may be sent to clients but they will be disabled if clients have not subscribed to SG Research services.
Note also - Provision of MNMB services to clients
Clients who have not subscribed to SG Research service offerings may be invited to events organized by SG if the content of those events is assessed as MNMB. This will be detailed in the invitation sent for such occasions
Information for Clients
Notwithstanding the above details as to how SG has made an assessment as to what it considers as MNMB, ESMA has stated that firms need to have in place policies and systems to assess the nature of any service, benefit or material paid for, or provided by, any third party to determine whether they can provide or accept it. It is not acceptable to receive research for free where no assessment has been made under the rules on inducements in Article 24, paragraphs 7, 8 and 9, of MiFID2 or where there is no payment arrangement in place that complies with Article 13 of the Delegated Directive.
Conclusion: MNMB, Unsolicited research and your capacity to unsubscribe
The communications referenced above will be provided to clients as Minor Non Monetary Benefits and not for the purpose of providing unsolicited research. If you do not agree with SG’s interpretations of MiFID2, the Delegated Directive and supporting legislation/documentation relating to NMNB, and have made an assessment that you may not receive certain materials, you can unsubscribe to the provision of such materials by sending an email to your SG sales contact.
(i) These guidelines have been designed with reference to, amongst other sources:
[Delegated Directive]: MIFID2 Delegated Directive 7 April 2016 recital 28-29-30 and Articles 12 – 13
[QA]: ESMA Questions and Answers on inducement (research) 4 – April 2017
NB. Highlights and underlining are SG’s own
(ii) [Delegated Directive recital 28] In order to ensure that portfolio managers and independent investment advisers properly monitor the amounts paid for research and to ensure that research costs are incurred in the best interests of the client, it is appropriate to specify detailed governance requirements on research spending. Investment firms should retain sufficient control over the overall spending for research, the collection of client research charges and the determination of payments. Research in this context should be understood as covering research material or services concerning one or several financial instruments or other assets, or the issuers or potential issuers of financial instruments, or be closely related to a specific industry or market such that it informs views on financial instruments, assets or issuers within that sector. That type of material or services explicitly or implicitly recommends or suggests an investment strategy and provides a substantiated opinion as to the present or future value or price of such instruments or assets, or otherwise contains analysis and original insights and reach conclusions based on new or existing information that could be used to inform an investment strategy and be relevant and capable of adding value to the investment firm’s decisions on behalf of clients being charged for that research.
(iii) Delegated Directive Article 13
- information or documentation relating to a financial instrument or an investment service, is generic in nature or personalised to reflect the circumstances of an individual client;
- written material from a third party that is commissioned and paid for by an corporate issuer or potential issuer to promote a new issuance by the company, or where the third party firm is contractually engaged and paid by the issuer to produce such material on an ongoing basis, provided that the relationship is clearly disclosed in the material and that the material is made available at the same time to any investment firms wishing to receive it or to the general public;
- participation in conferences, seminars and other training events on the benefits and features of a specific financial instrument or an investment service;
- hospitality of a reasonable de minimis value, such as food and drink during a business meeting or a conference, seminar or other training events mentioned under point (c); and
- other minor non-monetary benefits which a Member States deems capable of enhancing the quality of service provided to a client and, having regard to the total level of benefits provided by one entity or group of entities, are of a scale and nature that are unlikely to impair compliance with an investment firm's duty to act in the best interest of the client.
(iv) [Delegated Directive recital 29] non-substantive material or services consisting of short term market commentary on the latest economic statistics or company results for example or information on upcoming releases or events, which is provided by a third party and contains only a brief summary of its own opinion on such information that is not substantiated nor includes any substantive analysis such as where they simply reiterate a view based on an existing recommendation or substantive research material or services.