ESMA tightens unbundling rules for sell-side

Sell-side must be able to explain and justify pricing of research for unbundling.

Sell-side firms will be required to explain and justify how they price research under MiFID II’s unbundling rules.

The European Securities and Markets Authority (ESMA) explained in its latest Q&A, investment firms supplying research must be able to explain how they price their services.

It added this is particularly the case for firms providing execution services, “to enable them to evidence that their research pricing is not influenced or conditioned by other payments for execution services,” the Q&A said.

Vicky Sanders, co-founder of institutional research firm, RSRCHXchange, commented: “ESMA looks to be closing down potential loopholes and creative workarounds, like ‘discounting’ research costs based on overall trading.

“What has come out from ESMA is an increased responsibility for the sell side and will require a serious rethink for many department heads.”

She said the latest Q&A adds responsibility to sell-side firms who were initially tasked with pricing and supplying research.

“ESMA have added to those substantial requirements in the Q&A. It's not sufficient to just throw a price on research,” Sanders concluded.

It is widely believed MiFID II’s unbundling will have a significant impact on global firms with substantial business in Europe.

A research report found large buy-side firms with a presence in multiple regions are looking to ‘lessen the burden’ of maintaining distinct research management processes in different parts of the world.