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THE OFFICIAL NEWSPAPER OF TRADETECH 2020
Buy-side
Europe’s unbundling regime continues
to take hold of buy-side globally
A REPORT FROM LIQUIDNET REVEALS THAT NUMBER OF BUY-SIDE IMPLEMENTING UNBUNDLING POLICIES
GLOBALLY IS CONTINUING TO GROW.
A
sset managers are increasingly adopting
Europe’s MiFID II unbundling regime for
their businesses globally to manage operation-
al processes more efficiently, according to a
recent report from Liquidnet.
A survey of buy-side conducted by Liquidnet
found that just 12% of respondents have ring-
fenced European operations for unbundling,
while 70% of respondents have implemented a
global unbundling policy, up significantly from
53% in 2018.
For asset managers headquartered in the
US, 38% have implemented global unbundling
procedures, with more than a third stating they
are paying for research from P&L.
“We are based in the US, so out of scope of
MiFID II but we are unbundling our mindset
internally to make sure we allocate client
dollars most effectively,” one medium-sized US
asset manager explained. “We are forcing PMs
and analysts to think about the resources they
are taking from the sell-side and reconciling
that so we use our budget more effectively,
paying the dealers appropriately for the service
they provide and trading where we get best
execution.”
The unbundling of execution and research
payments has been a key part of European
regulation since MiFID II came into effect on 3
January 2018, as asset managers can no longer
accept research that has been paid for through
execution commissions.
In November, the US Securities and Exchange
Commission (SEC) extended a no-action let-
ter which allows brokers to continue charging
clients separately for research until July 2023.
The SEC’s chairman said the regulator needed
more time to evaluate the impact of unbun-
dling under MiFID II. Analysis has suggested
that US buy-side are increasingly in favour
of the rules, with many highlighting great-
er transparency and clarity around research
requirements.
Liquidnet’s report suggested that the quest
for best execution has been a key driver in the
adoption of unbundling globally, particularly in
the US, as it can be harder to attain bet exe-
cution when paying for research with bundled
commissions. The firm added that unbundling
has highlighted the sell-side firms that are
not keeping on top of investments in trading
technology.
“Unbundling no longer equates to whether
or not UK asset managers pay for research
from their P&L, it represents a fundamental
global shift in how data and the digitalisation
of investments will revolutionise the asset
management industry and those who can best
service them in the Information Age,” Liquid-
net said in its report.
Regulation
Short selling ban extended across Europe
RESTRICTIONS IN SHORT SELLING IN AUSTRIA, BELGIUM, FRANCE, GREECE AND SPAIN HAVE BEEN EXTENDED
DESPITE WARNINGS OF UNINTENDED CONSEQUENCES.
F
ive European countries have extended a ban
on short selling due to the ongoing coronavirus
pandemic, despite warnings from exchanges and
hedge funds that the move could harm markets.
Regulatory authorities in Austria, Belgium,
France, Greece and Spain have all confirmed
that the restrictions on short selling, which were
implemented throughout last month as markets
became increasingly volatile, will be extended un-
til 18 May, with the possibility for further renewal.
The European Securities and Markets Authority
(ESMA) welcomed the extension in a statement,
adding that the measures can be lifted before the
deadline if risks of a loss of market confidence
are reduced.
“ESMA considers that the proposed mea-
sures are justified by current adverse events or
developments which constitute a serious threat
to market confidence and financial stability, and
that they are appropriate and proportionate to
address the existing threat to market confidence
in those five markets,” the EU markets regulator
said.
A blog post published prior to the extension
from Bryan Corbett, the chief executive and
president of the Managed Funds Association
(MFA), which represents hedge funds, argued
that authorities should let the ban expire.
“The initial results from bans imposed in recent
weeks already point to problems: Bid-ask spreads
for affected shares widened more than 15 percent
compared to unrestricted shares since the impo-
sition of the bans,” Corbett wrote.
“That means the gap between the price at
which someone will sell and the price at which
another will buy grew because of the restrictions.
This spread widening is effectively a tax on all
investors trading the affected securities and
diminishes liquidity at a time when markets need
it most desperately.”
Similar warnings have been echoed by exchange
group’s and central counterparties, with the
World Federation of Exchanges (WFE) warning
soon after the bans were implemented that the
move would produce unintended results.
“Banning short-selling interferes with price for-
mation, thereby increasing uncertainty. That can
only artificially amplify volatility and probability
of default, the opposite effect to that claimed,
and hampers the ability of markets to serve the
real economy. It is not – and never has been –
true that bans have any other, positive effect
on market activity or price levels,” said Nandini
Sukumar CEO of WFE.