Will Europe’s Unbundling Rules Expand to the US?


The unbundling of research and execution services in Europe is one of Mifid II’s most ambiguous mandates. Aggelos says the precedent Europe is setting could trigger a domino effect in the US markets.

I was a rookie when I first got stuck into the murky world of unbundling while writing my first feature for Waters nearly two years ago. I was fascinated by the anticipated effect of the upcoming revised Markets in Financial Instruments Directive (Mifid II) on the capital markets and the notoriety it had already gained from a specific group of market participants.

Some players were determined to fight tooth and nail against its implementation, and that fight has been going on for a long time. Back in 2006, when the then UK’s Financial Services Authority (now the Financial Conduct Authority) was planning to integrate a similar regulation into its national legislation, these players fought against the move and won. But this time, it seems, they’ve lost.

So, the world is round and unbundling is going to happen and, for the first time, everyone will know who paid for what research, how it was paid for, and how much was paid. In his Waters feature in the October issue, John Brazier looked into the apparent unpreparedness of the buy side to comply with the new unbundling requirements as part of Mifid II, despite the flourishing technology solutions that have come to market in the last few years.

Beggars Belief

This state of affairs beggars belief, given how close we are to the January 3, 2018, deadline and, frankly, at this point, if anyone in Europe is still scratching their heads trying to figure out how they are going to cope with the mandate, they urgently need a reality check. 

There is, however, an interesting theory making the rounds on the other side of the Atlantic right now: US firms might be justified in dragging their heels with respect to unbundling since the US Securities and Exchange Commission (SEC) in August stated that for the time being at least, unbundling was not a priority. Just a few days ago, I attended a briefing in London for reasons unrelated to unbundling, organized by a US-based multinational company. And yet unbundling dominated the discussion. Both the chair and the rest of the panel concluded that the unbundling of research is definitely something that will affect the US capital markets, especially firms with global operations. Nevertheless, everybody agreed that the unbundling of research is the one mandate from this regulation that has the potential to expand to their territories and become part of the US regulators’ official policy.

Coincidentally, the following day, while I was interviewing Pragma’s chief business officer, Curtis Pfeiffer, on a Mifid II-related issue, he said more and more US asset managers are starting to believe that it is only a matter of time before they will be forced by the US regulators to start paying for research. “It is their primary concern,” Pfeiffer said. “It does make sense since US firms with European activities need to comply, so in order to harmonize their operations, they will unbundle their research in the US as well.” 

He said the transparency this rule brings would generate a wave of demand from US end-investors. Hence, it will spread throughout the entire US financial services industry.


Recently, research aggregator RSRCHXchange announced that it would be expanding its operations to North America as a result of the increased demand from “non-Mifid” firms. To me, this is an indication that unbundling talk is now permeating the US market. Vicky Sanders, the firm’s co-founder, says that while full implementation is not going to happen in the near future, asset managers are already adopting certain aspects of Mifid II. “What they are adopting are the audit trails and evaluation of their research consumption so that they can be more accountable for how much they spend with their providers,” she said. “We will see full unbundling when asset owners push their managers more aggressively for the transparency on costs and improved governance around research spend that it brings.” 

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