Research unbundling is creating a whole new marketplace model for research procurement and consumption.
One of the biggest changes that asset managers face under MiFID II will be the need to unbundle research payments from execution commissions and provide evidence on how they are paying for that research, to the optimal benefit of their investors.
This is likely to shake up sell-side research departments and those independent research providers with limited distribution capabilities, with some fearing that it could potentially reduce the quantity of research in the marketplace.
But with every challenge there is a new opportunity. Research platforms are now becoming a key part of the value chain, acting as a central hub for research providers to distribute their research; good news for any research outfit that wants to have the potential to reach the widest possible buy-side audience.
One of the leading platforms is London-based RSRCHXchange, co-founded by Jeremy Davies and Vicky Sanders. Their RSRCHX platform offers asset managers a single MiFID II compliant research solution, covering all functions from discovery to reading reports and including essential features like budgeting, consumption tracking and analysis.
"The average buy-side firm might have 80 to 100 research providers that include a mix of banks and independent firms," says Sanders. "To comply with the incoming MiFID II regulations, asset managers will need to decide quickly who they want to enter into a contract with. It is highly unlikely that they would negotiate directly for research from all of their current providers."
"Contracting with one research platform like RSRCHXchange, which currently has over 200 research providers on the platform, is an attractive proposition. The later into the year people leave this, the more attractive that proposition is likely to become," suggests Davies.
He adds: "What our platform offers is aggregation, procurement and management of research. The cloud environment means we can bring all of that research into one secure place, making it accessible, fully searchable and customisable depending on the person's role and position within the organisation and their area of interest. They can immediately start to monitor their consumption, rating a research report as soon as they've read it."
Using a simple dashboard tool, clients can see research usage across different sub-asset classes, how it has been rated, and a breakdown of the dollar spend on each piece of research consumed within the organisation.
"All the content is securely hosted, so none of the research can be physically downloaded. What that does is mitigates the risk that the hedge fund manager is being induced by free research," says Sanders.
One of the unintended consequences of MiFID II is the concept that if a buy-side firm only uses and pays for research from five research providers, for example, they will need a mechanism to discover and unlock research from other providers and have a simple way of paying for it.
From January 2018, all research has to be priced separately from dealing commissions and budgeted and paid for by the asset management firm. The regulation stipulates that `you shall not receive research that you have not paid for'.
"We are the only institutional platform that gets people from the discovery phase through to access, handling all the research payments automatically. We are unlocking the research market, both for the buy-side and sell-side," concludes Davies. n