If you’re working in the City these days you’re probably sick of the words “MiFiD II”. It’s happening in January 2018 and there are many implications, some of which are still somewhat unknown. Compliance Officers have had a busy year, that’s for sure!
One of the changes coming is with respect to Research costs. Currently Prime Brokers “give” clients swathes of Research for free as “part of the service”. I have seen a suggestion that only about 1% is ever actually opened and/or read. So clearly there is some inefficiency there! Under MiFiD II regulations the costs for research will now need to be “unbundled” from commission costs, so a bill from January will have to be itemised with a price put on the commission element and a price for the research.
In theory (he says with more than a hint of cynicism!) this should be good for Independent research providers. It levels the playing field. You could argue that it “frees up” clients to choose what they want to read, and if they decide the analysis they get from the current sources doesn’t fit their purpose they can use that money to “go shopping” and find something that does. The Independent sector is surely somewhere to go on those shopping trips?!
Over the 17 years I have been operating I have had many “Institutional” clients have a trial of my Analysis, often with the trader saying “I like it, I want it” (mostly because it’s practical, succinct, and actually gives an opinion!), only to be told, when they go to get it “signed off”, that they can’t have it, “because we get loads of free analysis from the Prime Brokers”: Very frustrating from my point of view, let me tell you! So as I say, in theory this brave new world should change all of that.
The problem is when you’re entering a brave new world not many people know what to expect, and how exactly things are going to pan out. This has been reflected in the disparity of pricing that many (non-independent) research providers are currently putting out there. I often hear the view that they may just “give it away”. I have also heard that the FCA will take a very dim view of that idea!
Independent Research should “win” on many fronts. Should… For one thing it’s exactly what is says on the tin: “Independent”, so doesn’t have to subscribe to or adhere to the “house view” or worry about whether there are conflicts with other parts of the organisation. Secondly it is often more specialised, as our Analysis is for example. And thirdly, because an Independent firm will usually have lower overheads, it will likely turn out to be a more affordable alternative. We’re about to enter an era where price and quality will become important, that’s the whole idea of the regulation.
Independent Analysis should benefit then, but something tells me this isn’t going to be a straight road!
Incidentally if you would like a(nother) trial of the FuturesTechs analysis please feel free to contact me to arrange this. We write daily analysis covering Bond Futures, Equity Indices, Commodities and Forex. Why not take a look?!
For further reading on Independent Analysis, MiFiD II, and “unbundling” I suggest you head over to the excellent EuroIRP website.