August 2017: Another Example of Our Industry Growing Up
The unbundling of research will present new challenges for the industry, but on balance, it should be good.
The countdown to January 3 next year—the day the revised Markets in Financial Instruments Directive (Mifid II) hits the European statute books—is now well and truly under way. As this magazine has reported over the past number of years, the implications for all capital markets firms with respect to complying with the Directive are far-reaching. One of the most significant changes under Mifid II pertains to the relationship between buy-side firms and their research providers. Come the first working day of next year, buy-side firms will for the first time be required by law to purchase all their research and separate their research and execution functions, which have in most cases been provided by the same entities. What this means in practice is that where buy-side firms had been inundated by free research from specialist providers, research aggregators and sell-side firms, they now need to select and pay for the research they choose to receive, and they need to disclose what they are paying for, why they are paying for it, how much they are paying for it, and where the payment is coming from.
Currently, buy-side firms are in the somewhat luxurious position of not having to pay for any research. It’s akin to walking up and down the aisles of a superstore and helping yourself to anything and everything that catches your eye, although in this scenario, nothing is priced. Who said there is no such thing as a free lunch?
So, not only is the research free-for-all coming to an abrupt end, but research providers are going to have to start working out how exactly they are going to price their research.
What’s clear is that the market is set for massive upheaval. It’s impossible to get an accurate figure on the number of research providers serving the European capital markets—I’ve heard estimates ranging from approximately 1,000 to over 4,000—but what I am sure about is that come the end of next year, that number will be significantly smaller. In fact, one buy-side CIO I spoke to recently believes that his organization might whittle its research providers down from “hundreds” to a core of only five. Yes, things are about to get hairy in research land.
Is the unbundling of research and brokerage commissions a good thing? On balance, I think it probably is. After all, providing end-investors with greater transparency into what they are paying for in terms of asset management fees is long overdue. That is one of Mifid II’s central tenets. But I can’t imagine that the sell side and specialist producers are looking forward to the new dispensation with excitement. And how they are going to fairly price a commodity that they’ve been throwing at the buy side for years is anyone’s guess. That’s a circle they will all struggle to square.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
More on Data Management
Hub to lay off 20% of staff, sources say
Hub’s CEO says this is simply a case of a startup trying to stay nimble and efficient; others say it points to deeper issues.
TS Imagine integrates LTX’s pre-trade analytics tool
Users of the fixed-income EMS will now have access to LTX’s Liquidity Cloud tool, which provides a pre-trade score for the likelihood of trading success.
After contentious Opra upgrades, vendors brace for a faster future
Upgrades to the datafeed widely used to gauge the current market price for options contracts went into effect in February after three separate delays, which market participants say were caused by persistent bandwidth issues at some important recipients.
The IMD Wrap: No more turf wars, or why CDOs should heed the Voice of the CTO
Max reviews how our recent Voice of the CTO series has implications for those beyond a firm’s technology function, and how communication and collaboration between tech, data, and leadership will deliver better results.
Dark horse: Deutsche Börse building dark pool
New functionality allowing exchange members to execute sweep trades comes hot on the heels of European rival Euronext launching its own dark pool.
Man Group’s proprietary data platform is a timesaver for quants
The investment firm’s head of data delves into its alt data strategy and use of AI tools to boost quant efficiency.
Waters Wrap: The tough climb for startups
Anthony speaks with two seasoned technologists to better understand why startups have such a tough time getting banks and asset managers to sign on the dotted line.
As crypto ETFs become reality, benchmark providers take center stage
The SEC’s approval of the first spot bitcoin ETFs will expose a growing number of traditional market participants to the maturing world of crypto data, a moment that some—such as CF Benchmarks, BlackRock’s benchmark provider—have been eagerly awaiting.
Most read
- Women in Technology & Data Awards 2024: All the winners and why they won
- Witad Awards 2024: Above and beyond award (vendor)—Susan Bennett, Tradeweb
- Fighting FAIRR: Inside the bill aiming to keep AI and algos honest