The introduction of MiFID II regulations around Transparency, BestEx and Inducements will change the relationship between buyside firms such as asset managers , and the sellside banks and brokers who service these clients (although non-financial clients such as corporates will be excluded). In particular, the regulations will lead to the ‘unbundling’ of research from execution, and the effect will fundamentally change the way in which buyside firms pay for, and consume research across all asset classes.
Traditionally, buyside firms have ‘paid’ for research through a Commission Sharing Agreement (CSA), whereby the executing broker would ‘retain’ a portion of the commission paid for the trade to use to pay for external research and other services for the client. Buyside fund managers would typically allocate commission attributable to research on the basis of ‘broker voting’. However, this was seen by the Financial Conduct Authority (FCA) (and more recently here) as an inducement to trade, as it could encourage buyside firms to over-trade in order to gain larger share of research budget, rather than considering value for money.
Under MiFID II, the rules on inducements and paying for Continue reading