I was hoping to enjoy the last few weeks of summer in
relative peace, but it seems that another regulatory storm is
This time itâ€™s over the unbundling of
research and it all stems from ESMAâ€™s
interpretation that, under Mifid II, research is an
â€œinducement to tradeâ€ and
therefore cannot be paid for out of commissions.
This threatens to completely derail the economics of trading
and reduce the quantity and quality of research available (and
the resultant investment decisions).
The current approach allows for research and other
legitimate broker services to be paid for out of dealing
commission and is managed and controlled via commission sharing
Provided the right systems are in place the buy-side can
evidence all of their decisions as to where commission dollars
were spent and the sell-side can be adequately rewarded for
providing quality research â€" the better the
research it provides, the more commission dollars it
I wonder if a better approach, then, might be to ensure the
whole CSA process is standardised and works properly, since
everyone seems happy with it.
Otherwise, we will face the worst possible outcome. Firms
will have little incentive to invest in proper CSA management
systems today if they believe that everything will eventually
be fully unbundled.
This will do little for industry efficiency and seems to fly
squarely in the face of any regulatory objective of
And, at the same time, the whole of the European investment
industry will be placed at a competitive disadvantage as the
unbundled â€™sticker priceâ€™
of their services will appear much higher than that of their
competitors in the US or Asia.
This article is taken from
Fidessaâ€™s Fragmentation site,
for more information.