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.
![victor-anderson victor-anderson](/sites/default/files/styles/landscape_750_463/public/import/IMG/687/336687/victor-anderson-cutout.png.webp?h=dab9944f&itok=XeeAv3T7)
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.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
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. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Data Management
Reading the bones: Citi, BNY, Morgan Stanley invest in AI, alt data, & private markets
Investment arms at large US banks are taken with emerging technologies such as generative AI, alternative and unstructured data, and private markets as they look to partner with, acquire, and invest in leading startups.
The costly sanctions risks hiding in your supply chain
In an age of geopolitical instability and rising fines, financial firms need to dig deep into the securities they invest in and the issuing company’s network of suppliers and associates.
JP Morgan’s goal of STP in loans materializes on Versana’s platform
The accomplishment highlights the budding digitization of private credit, though it’s still a long road ahead.
As data volumes explode, expect more outages
Waters Wrap: At least for those unprepared—though preparation is no easy task—says Anthony.
CrowdStrike outage spurs rethink on ‘critical’ vendors
Some want US regulators to designate tech firms that pose risks to financial stability
Regulators recommend Figi over Cusip, Isin for reporting in FDTA proposal
Another contentious battle in the world of identifiers pits the Figi against Cusip and the Isin, with regulators including the Fed, the SEC, and the CFTC so far backing the Figi.
Déjà vu for common domain model
Piecemeal progress on ambitious derivatives data standard raises questions over business case
The IMD Wrap: With Bloomberg’s headset app, you’ll never look at data the same way again
Max recently wrote about new developments being added to Bloomberg Pro for Vision. Today he gives a more personal perspective on the new technology.