Ensuring access to the right broker research is one of the biggest MiFID II challenges facing buy-side firms. Our recent webinar gave an insight into the new requirements.
From 3rd January 2018, it will no longer be possible for asset managers impacted by MiFID II to pay for research using trading commissions.
This aspect of the MiFID II directive will have far-reaching consequences for the global investment industry, with the buy-side having to work out how to obtain the best quality research and the sell-side having to understand how to get it in front of them.
Our recent webinar provided guidance on this research unbundling challenge and highlighted the work still to be done by many firms. In our webinar poll, only 12 percent said they were “very confident” of being ready by the end of this year.
So what are the questions facing the rest?
- Will you still have access to the broker research you need?
- Do you have a process to identify research value including usage across your firm?
- Do you know who the best performing sell-side analysts are so you can focus on what to source and what to read?
- Can you objectively evaluate your in-house research and ensure you are maximizing its value?
The challenge for the buy-side is to get the best quality research – efficiently – and to maximize the use and effectiveness of in-house research.
On top of this, knowing how research is used within your organization can help you measure its value and relevance, and aid in discussion with sell-side firms.
Research payment account
Richard Johnson, Vice President of Market Structure and Technology at Greenwich Associates, explained at the webinar that asset managers will be required to define a research budget in advance on a per client basis.
He added: “The investment firm must set and regularly assess a research budget which must be agreed with clients and must regularly assess the quality of research purchased and its ability to contribute to better investment decisions.”
As for payment for the research, firms can either pay out of their resources or via a research payment account.
Watch video — MiFID II – The Implications of Research Unbundling
Impact on research budgets
Johnson also presented a study conducted last year on unbundling and research budgeting that offered insightful points on how MiFID II will affect research.
For example, most believe research budgets will stay the same or decrease under MiFID II.
Johnson said: “We calculate a net decrease in research budgets of around six to ten percent.”
The study also found that, in most cases, both U.S. and European institutions will have to make changes to their research evaluation process on a global basis.
Jamie Coombs, Market Development Manager Europe, Thomson Reuters, stepped in to cover the buy-side challenges.
Aside from the obvious dilemma of how institutions will now be purchasing research, firms have to think about assessing the quality and consumption of research going forward.
He said: “That’s going to be key to any negotiations that you’re having directly with brokers about their pricing models, how much you intend to consume, how much you have consumed, and what that model looks like for you.”
The changes that sell-side firms will have to make to stay competitive were addressed by Severine Raymond-Soulier, Head of Market Development Europe at Thomson Reuters.
She said: “There is definitely a need to create some attractive research packages at the right price point”.
“We’re seeing a trend to try to move away from single-stock research reports, to focus on more non-traditional reports.”
She added: “This regulation, in a nutshell, I think will completely transform the sell-side research environment.
“It has already started, we are seeing some new partnerships and mergers… so there will be a re-shape of the environment, but it will also impact the buy-side.”
Eikon search and discovery
With increased competition comes an increased need for marketing.
Research portals will have to be revamped in order to attract readers as well as retain the best analysts in the market.
There are several features currently in Thomson Reuters Eikon that allow you to access and review research and analysts’ performance.
Search and discovery in Eikon gives buy-side firms easy access to research, with keyword and topic search across all Research, Transcripts, Filings and News.
Firms can also view usage tracking at user-level or firm-level directly through Eikon, and then export this data to Excel.
We will also be working with partners to develop new tools, which will include a research valuation framework, a systematic (qualitative and quantitative) broker vote, and notifications on corporate access events.