Research commissions and best execution are seeing increased scrutiny from regulators, and The TRADE, in association with Markit, would like to invite its readers to complete a short survey on the way they manage commissions and examine their trading performance.
The latest MiFID II consultation, published in December 2014, the European Securities and Markets Authority (ESMA) scaled back on radical proposals seen in an earlier discussion paper, but still plans to increase oversight of the use of commissions to pay for research.
“In December ESMA published its MiFID II technical advice, presenting a welcome compromise to an earlier FCA proposal which threatened to impose full ‘unbundling’ of the use of commissions to pay for equity research,” said Tom Conigliaro, head of trading services at Markit. “ESMA has clearly taken on board the industry’s comments highlighting the potential unintended consequences of full unbundling.”
Despite steering clear or full unbundling, ESMA has outlined several new requirements for buy-side firms to be more transparent about how much they spend on research and to exercise greater cost controls. Current initiatives such as use of commission sharing agreements (CSAs) will still be allowed to continue, but may need to be more robust and their use documented to satisfy the needs of regulators.
“The main impact of ESMA’s new advice will fall on the buy-side who will have to determine budgets for research and agree with their fund clients how much research they want to purchase, what to pay for it as well as show an audit trail for the payments,” Conigliaro added.
“It’s important to find out how the market is using CSAs in order to help educate the industry about how to best use CSAs to comply with the future regulatory regime. Under Esma’s technical advice CSAs are still permitted, but more transparency is needed around demonstrating the quality and value of the research to the investment process.”
Best execution is also in the regulatory spotlight after UK regulator the Financial Conduct Authority (FCA) published a review in July. It found many firms were falling short of their best execution obligations and failed to understand the full extent of their responsibilities.
While many firms now deploy transaction cost analysis (TCA) to measure their performance, there remain concerns about potential conflicts of interest from TCA providers and a lack of standardisation.
The TRADE and Markit would like to invite you to help us gain a greater understanding of how the buy-side uses CSAs and TCA as part of their trading process in our two-minute survey HERE.All responses will be confidential and participants will receive a free report of the survey’s findings.