Articles Marketmedia

Independent Research Providers Prepare for MiFID II

Written by Shanny Basar | Nov 2, 2015 4:16:54 PM

RSRCHXchange, which launched in September, has doubled the number of research providers on its online marketplace for institutional research as fund managers scrutinise their research budgets ahead of new regulations.

Bashar Al-Rehany, chief executive of independent provider BCA Research, told Markets Media: “The independent research space is poised for growth. MiFID II will provide more transparency which is positive for independent research providers.”

The  European Securities and Markets Authority has proposed unbundling research payments from dealing commissions in order to avoid conflicts of interest under MiFID II, the new regulations covering financial markets in the European Union from 2017. Esma has suggested that fund managers either pay for research out of their own revenues or set up research payment accounts for clients which have an agreed budget. The UK’s Financial Conduct Authority has created controversy by saying the new rules are incompatible with the use of commission sharing arrangements.

Jeremy Davies, co-chief executive of RSRCHXchange, told Markets Media: “The new providers realise that as banks and brokers will no longer give away free research, there will be a massive opportunity for firms that provide insight. They have previously found it hard to gain traction with the buyside and had to sell their product to the sellside.”

RSRCHXchange announced today that more than 100 multi-asset providers had joined the platform so fund managers can easily access their research through subscriptions or buying individual reports via cash, commission sharing arrangements or the new research payment accounts under MiFID II. Fund managers can search for specific terms within all the reports on the RSRCHXchange and meet their record keeping requirements under MiFID II by measuring and monitoring consumption.

BCA Research has developed its own system, BCA Edge, which allows its clients to search for content and themes within its macro and micro reports.

“Fund managers have information overload and need a way to discover relevant content that is actionable, that they can use to drive investment decisions, use in presentations and can easily store and access from anywhere,” added Al-Rehany. “BCA Edge provides a customisable dashboard of content that has been deconstructed to fit any investment professional’s workflow and market focus.”

RSRCHXchange passes all providers pass through an onboarding process which includes a compliance questionnaire designed in collaboration with both UK and US-based asset managers.

Vicky Sanders, co-chief executive of RSRCHXchange, told Markets Media: “We have spoken to people who are starting their own research firms and they are spending three days a week on admin. Our site had been set up in a commercial way to provide these services at a variable cost.”

Esma did not include the unbundling rules in the regulatory technical standards released last month but they are expected in the Delegated Acts published this month.

Davies said: “The genie is out of the bottle for research payments, and regardless of delays, the direction of travel is clear.”

Deloitte discussed MiFID II with 15 investment managers and two independent external experts for a paper last month, “Navigating MiFID II – Strategic decisions for investment managers”, which found that they  believe the new rules will have the greatest impact on their strategy over the next two years. Purchasing research and transition reporting were two areas of particular concern.

“We expect the proposed rules to lead to investment managers increasing their scrutiny of the quality of research, with an accompanying flight to quality, and reducing their research budgets as the cost becomes more explicit,” said the report.

Deloitte also expects the changes to lead to a reduction in the number of sellside analysts and the exit of some independent providers.

Sanders said: “Providers and clients have realised that the research regulations make business sense and want to implement changes today. For clients, research costs are their second biggest line item over which they have had very little insight.”

Featured image by Rawpixel/Dollar Photo Club