With MiFID II firms must budget for and purchase financial research

Unbundling research and execution

Paying for financial research services through trading commissions is prevalent throughout the financial industry, but has garnered scrutiny because it may encourage both excessive trading and use of services.

Rules about the use of trading-related commissions have increasingly tightened over 30 years, but MiFID II makes a clean break, permanently severing research from execution services. 
 
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Research becomes a buy side line item

Regulators are expecting asset managers to budget and pay for financial research as they would any other essential business service. Likewise, banks, brokers and trading firms have to explicitly charge for execution and research separately.

This means buy-side firms will need to set research budgets in advance – budgets which cannot be linked to research volumes. With this change, managers will now need to make strategic choices about the research they consume and closely scrutinize its value.

Strategic, value-focused research choices

As they set budgets, buy-side firms will need to closely consider:

  • What third party research they require (and what is available in-house)
  • The value of research and how much they’re willing and able to pay
  • Ways to find the best quality, most useful research for the price
  • How to assess research quality and performance
  • Means of measuring research usage throughout the organization

 

In addition, because research-pricing models are not prescribed, different menus of service are likely to emerge depending on the provider. There may be “all-you-can-eat” plans with a provider for a set fee, as well as individually priced “a la carte,”  “pay-as-you-go” services.

Research discovery, assessment and management

We prepare buy-side firms for MiFID II research regulations.

Thomson Reuters Eikon provides direct access to research from over 800 active brokerage firms, independent research firms and other sources, covering 21,000 companies across 87 countries. The Eikon Search and Discover tool helps firms quickly find relevant information through powerful keyword search across content, market sentiment and theme-based analysis.

Eikon research usage assessments offer firms the ability to track both third-party and proprietary research usage by enterprise, department or individual analyst, driving an understanding of how research is used in a firm and measuring its value and relevance. 

Intelligent Tagging enables buy-side firms to manage unstructured data and make it useful. Uploading proprietary and third party research, firms can make them easily searchable by company, people, event and location.

Thomson Reuters StarMine powers an Analyst Score Card. Available on Eikon, the Score Card enables firms to objectively assess analyst quality and value based on performance relative to their sector and security peers.

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