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he forced unbundling of
research and execution
commissions is among the
most controversial parts of MiFID
II that has led both the buy- and
sell-side to ask one deceptively
simple question; how much does
research actually cost?
It seems absurd to think that
securities research, something
on which asset managers and
investment banks spend billions
of dollars every year, does usually
have a specific price attached to it.
But this peculiar situation has
now had its day and, from January,
any firm selling research on finan-
cial securities will need to have a
pricing structure. Some of the first
hints regarding pricing have been
seen over the summer, with uncon-
firmed reports that Barclays would
charge up to £350,000 per year for
its top research package. Barclays
has said it doesn’t recognise that
figure, but also hasn’t publically
commented on how much it plans
to charge clients to access its
reports and analysts.
While this rather large number
hit headlines and raised eyebrows
among some, Vicky Sanders,
co-CEO of research platform
RSRCHXchange, says it would be
less surprising to those firms who
are already negotiating with the
sell-side over their future research
needs.
“These amounts probably look
much bigger and more alarming to
those outside of the industry than
they do to most asset managers.
Many firms have begun negotiating
their new research arrangements
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TheTrade
Autumn 2017
with their brokers back in Q4 2016 so they will already
be very familiar with the kind of pricing that will be on
offer once MiFID II comes into force,” she explains.
“The industry spends some $20 billion per year on
equities research globally so when you put it in con-
text, these amounts don’t seem particularly unreason-
able,” Sanders adds.
It’s worth bearing in mind that top tier subscriptions
to investment bank research will not only include the
full range of their research reports as soon as they are
published, but also valuable access directly to the ana-
lysts to discuss their insight into particular securities.
Some firms are likely to push access to their analysts as
a major differentiator and premium service, which will
inevitably attract a high price tag.
Blair Livingstone, CEO and founder of Street Contxt,
a platform for buying and selling research, believes the
dividing line between written research and analysts
access will become more pronounced once Europe
unbundles commissions.
“The cost of written content will be relatively low, but
will be used as a way to market the much higher cost to
access the person who wrote that content,” he says.
Livingstone predicts tops analysts and those with
highly specialist knowledge will be able to command
a very high price for their time. Rapid access is also
likely to be priced at a premium, such as being able to
speak to an analyst immediately after an earnings call.
“Getting insights a day after earnings are announced
would be cheaper, wheras speaking to someone within
an hour of the earnings call will be far more expensive,
there’s a lot of complexity to solve around offering and
pricing services,” he explains.
Prices aren’t fixed
As with almost any service sold B2B, negotiation will
form an important part of determining the final price
the buy-side pays for its research. Even those banks
that are now outlining package-deal prices will no
doubt have left plenty of room for negotiating those
prices down, particularly for those clients they most
value. It would be foolish to refuse to hand out a
relatively minor discount to a firm with hundreds of
billions of assets under management.