We hosted 25 people at the Counting House in London for a presentation and discussion about the effect which MiFID II is going to have on the investment research business. Historically research has been funded by investment banks from commissions on trades and deals. Over the past 20 years the ability to do this has been eroded in response to perceived conflicts of interest within investment banks starting with the dot com boom/bust in 2000 and progressing through the global financial crisis in 2008 where banks were found recommending one course of action in their research but taking another course in their own trade book. The “unbundling” of research and execution has been a hot topic for more than 10 years now and MiFID II is the latest attempt by regulators to remove all conflicts in an effort to protect investors.
Pedro Fernandes, co-founder of Research Pool, shared his insights into how the buy side is thinking. A number of the larger UK fund managers will move to paying for research directly from the P&L and many of the global players are also moving towards MiFID II compliant operations worldwide. For fund managers who wish to continue funding research through Commission Sharing Agreements (CSAs), which are known as Client Commission Agreements (CCAs) in the US, will need to upgrade their technology so that they can provide an audit trail to demonstrate that the research for which their clients have be charged had been both valuable and cost effective.
Iain Reed, Chairman of EFA, gave a brief talk on the opportunity for sell-side firms to use technology to more effectively monetise analyst activities by capturing the IP of the modelling and analysis process and making it available through data feeds and interactive analysis tools. Lawrence Paterson of Quark gave a brief presentation on using technology to capture the IP from analyst authoring activities for publication into multiple digital channels. Finally, Justin Percival of worldflow spoke on distributing all the above IP in a multi-platform world so that the buy-side will be able to consume it in their desired format and allow the sell-side to track such consumption so that they can assist their clients in being MiFID II compliant.