Mifid II has resulted in asset managers choosing more boutique brokers and research providers increasing their coverage of small and mid-cap firms, as well as becoming something of an unofficial global way of working, according to research from Liquidnet.
The European regulation, which came into force at the beginning of last year, has resulted in 55 percent of respondents to a Liquidnet survey taking research from more than 50 brokers globally, the same as last year. But the type of broker is changing.
Last year 69 percent of buy-side firms chose bulge bracket brokers for research but now they are differentiating between those that provide basic coverage and those where they want to engage with an individual analyst.
Rebecca Healey, head of EMEA market structure and strategy at Liquidnet, says in the report: ‘There is an increased interest in smaller brokers’ offerings or specialist research provision as a way to differentiate themselves and add value to their investment process.’
The survey finds that since Mifid II came into force, overall research spend has decreased for 39 percent and remained constant for nearly half – 48 percent – of asset managers. In addition, 13 percent of buy-side respondents are choosing to raise their research spend.
‘Increasingly, the focus for buy-side firms is not on how many providers to engage with but whether the brokers on the list deliver the quality and value-add that is expected to help with the investment process,’ says Healey. ‘By honing in on quality and alternatives, the opportunity for growth in research provision could be an opportunity for providers globally, not just in Europe.’
For example, 80 percent of research providers are now increasing their coverage of small and mid-caps in a bid to diversify their product offering.
Healey adds: ‘Identifying which research services firms are paying for and the price for those services will be the first step, whether via better identification of bundled commissions or choosing to pay for research direct from the profit and loss statement.’
Liquidnet also notes the observation, made by IR Magazine, that Mifid II has become something of an unofficial international standard, with the majority – 58 percent – of respondents choosing to implement the unbundling of Mifid II globally. In addition, a further 11 percent expect to adopt a global Mifid II approach in the next five years.
‘In Europe the change may be driven by regulation, but in the US it is being led by some asset owners requiring greater transparency over what they are paying for research and the services they are receiving in return,’ says Healey.
