K & K GLOBAL CONSULTING RESEARCH
Inducements , payments for research and the relationship with the investment teams
With MiFID II just around the corner , more firms are now deciding that they will pay for equities investment research out of their P & L . As Derek McCole , from Aberdeen Asset Managers , mentioned in his article ( page 12 ), the US Securities and Exchange Commission ’ s ( SEC ) recent measures to facilitate cross-border implementation of the EU MiFID II research provisions will support the buy side who decided not to use Commission Sharing Agreements . The fixed income and foreign exchange traders are generally all going the P & L route to pay for research , if they will pay for research at all . Foreign exchange is rarely traded for investment purposes so therefore some firms will not pay for any research in this asset class .
Clearly , investment research should no longer be a topic for a centralised trading desk and traders should by no means be perceived as consumers of such research . The Financial Times specified on the 13 th November 2017 that the UK FCA has also specified that “ market colour ” would also count as research under the inducement rules . With the increasing regulatory arbitrage opportunities between Britain and the rest of the EU27 countries , K & KGC hope that the UK FCA will not pursue such ambitions as the EU27 countries are unlikely to follow .
The UK FCA have also made a unique statement in July 2017 to clamp down on brokers subsidising trading and TCA technology for the buy side . This is something that the buy side have shown mixed levels of excitement about . There is evidence to show that some technology vendors are misusing their dominant market position , overcharging the brokers so some of the buy side have applauded this initiative . It is still questionable if this will result in any better market pricing .
Undoubtedly , we haven ’ t had the last discussion about execution only rates , which categories should there be , to what extent can you blend execution related services into a single rate and how will the OMS technology handle fills with different rates . We will discuss these topics under the headline “ best execution ” going forwards in the unbundled world . With this clear delineation of responsibilities between the ‘ execution ’ and ‘ investment ’ teams , K & KGC has started mapping the best practice means of collaboration between the teams .
Winter 2017 www . buysideintel . com
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