[ N E W S
to access prospective clients.”
Overall, the FCA stated that the
introduction of research unbun-
dling in the UK had “steered the
market towards the intended
outcomes” but recognised that
research pricing and valuation was
still evolving.
“Firms are continuing to develop
their arrangements and a market
for separately priced research
is still emerging. Therefore, we
intend to undertake further work
in 12 to 24 months’ time,” the FCA
concluded.
research budgets on the buy-
side have shrunk since MiFID II
came into force. The FCA’s survey
found that research budgets had
decreased between 20-30% for
external research acquisition, with
buy-side firms now paying less for
research as a result of a tighter,
more accurate focus on what they
require, using acquired research
in a more efficient manner and
increased competition from pro-
viders.
The FCA also surveyed a number
of independent research providers
(IRPs), that had been tipped to
prosper under the new regime as
bulge-bracket banks and brokers
would be forced to re-evaluate
their pervious “waterfall” research
provision strategies.
IRPs told the FCA that they have
concerns over the competitive na-
ture of the research market, high-
lighting low levels of pricing on
the sell-side for research as “large
multi-service banks are internally
cross-subsidising their research”
and “over-cautious approaches to
the inducement rules by the buy-
side and limited take up of trial
periods have reduced their ability
Cultural change
While the changes to research
unbundling are only formally
regulated in Europe under MiFID
II, a recent report from consul-
tancy TABB Group found that the
US asset management community
is increasingly taking a similar
approach, despite US regulators
making no formal ruling on the
matter as yet.
In its latest research as part of a
broader study titled “US Institu-
tional Equity Trading 2019 Unbun-
dling: How Charging for Content
Is Reshaping Asset Management”,
TABB highlighted the trend and
how buy-side firms are turning to
unbundling for cost savings and
transparency.
TABB Group interviewed 92 head
traders at US-based institutional
buy-side firms and found that only
33% of large firms are still bundling
research and execution payments.
In comparison, 45% of mid-sized
and 67% of smaller funds have
retained a bundled approach, and
43% of those interviewed stated
that research unbundling has had a
positive impact on their business.
“While we don’t believe that
the ability to acquire investment
research will be an existential
threat to the fund management
business,” said report co-author
R E V I E W ]
and founder of TABB Group, Larry
Tabb, “unbundling will dramatical-
ly change how investment research
is procured, funded and serviced
as it reshapes the character and
capabilities of not only the US asset
management industry, but its bro-
kers and service providers as well.”
Under the MiFID II regime
implemented across the Europe-
an capital markets at the start of
last year, payments for execution
and research from third-parties
must be separated, or unbundled,
although no such ruling has been
formally implemented in other
global regions.
Despite this, US asset managers
have been increasingly adopting
the European model over the last
18 months, with 90% of those
on the buy-side that were inter-
viewed saying that the Securities
and Exchange Commission (SEC)
should extend its no-action letter
on paying for research with hard
dollars, or enable “more leeway in
paying hard dollars to brokers for
their research”.
Those surveyed by TABB Group
also highlighted benefits such as
greater clarity around research
requirements and the ability for
traders to focus on best execution
instead of allocating trades to
research brokers based on their
ideas. Larger asset managers are
also seeking to implement a more
globally-consistent approach when
it comes to paying for research.
“While unbundling helps larger
funds, not all have embraced it,”
commented report co-author,
Campbell Peters, equities research
analyst at TABB Group. “Mid- and
smaller-size firms with fewer AuM
and less substantial commission
wallets now have to pick their pro-
viders, negotiate a value for their
chosen research provider and hope
they have a large enough budget to
fund their investment strategies.”
Issue 61 // TheTradeNews.com // 19