big-xyt.com
Transforming TCA with Data Science
TCA is evolving – Towards Comprehensive Attribution
Regulation
Larger buy-side firms cut research
budgets as MiFID II beds in
CFA INSTITUTE REPORT SUGGESTS UNBUNDLING HAS NOT HAD A POSITIVE IMPACT ON THE INDUSTRY AS BUDGETS
DECREASE, WHILE COVERAGE AND QUALITY OF RESEARCH FALLS.
R
esearch budgets at asset management
firms across Europe have fallen since the
introduction of MiFID II, with larger buy-side
firms making the biggest reductions after
taking on the costs of research under the new
rules.
A survey from CFA Institute on the impact of
MiFID II’s unbundling requirements one year
after implementation found that the average
decrease in research budgets is 6.3%, but the
scale back increases for larger asset managers.
Of those absorbing the costs of research under
MiFID II, asset managers managing more than
€250 billion have slashed research budgets by
11%, whereas buy-side firms managing between
€1 billion and €20 billion cut budgets by 6% on
average.
“With firms absorbing research costs, these
results suggest a greater focus on profitability
and efficiency with regard to research procure-
ment, and potentially a scaling back of the num-
ber of research inputs and external providers
used to support a firm’s investment strategies,”
CFA Institute said in its report.
Unbundling of research payments has been a
key part of European regulation since MiFID II
came into effect on 3 January this year, as asset
managers can no longer accept research that
has been paid for through execution commis-
sions. Many asset managers opted to charge
the costs of research to company P&L in order to
comply with the rules.
In terms of sourcing research, 57% of re-
spondents said that they source relatively less
research from investment banks than prior to
MiFID II. But independent research providers
have failed to benefit from this in terms of mar-
ket share gains, with just 17% of those surveyed
stating that they source more research from
independent providers.
Quality of research has also taken a hit since
the regulation was introduced according to
both buy- and sell-side respondents, as 27%
of buy-side respondents and 44% of sell-side
respondents agreed that quality has declined
under MiFID II. Research coverage one year
after MiFID II appears to be more concerning to
the industry, with around half of both buy- and
sell-side participants agreeing that overage of
small- and mid-cap equities has decreased.
“Very few respondents perceive an increase
in research quality or coverage under MiFID II,”
CFA Institute said. “Across all asset classes, less
than 10% of respondents on both the buy side
and sell side believe research quality or coverage
has increased. This is concerning for investment
managers and their clients, as well as for corpo-
rate issuers, and suggests the MiFID II reforms
have not, as of this point, led to improvements
in the provision of research.”
Issue 1
TheTradeNews.com
5