MiFID II Likely to Ban Commissions for Research

 MiFID II Likely to Ban Commissions for Research

It has been widely discussed within the investment industry that the proposed MiFID II regulations, as they stand, would effectively ban asset managers from using dealing commissions to pay for research.

The rules would, however, allow these investment firms to charge their clients separately for research under a research payment account (RPA) mechanism. Clients would have to sign off on this research budget, which would be distinct from the annual management fee.

MiFID II should be finalised in 2015 and implemented in 2017. The most recent stage in its implementation process was a drafting by the European Commisssion (EC) of the regulations. This body has the authority to change or keep the final rules that were drawn up by ESMA (the European Securities and Market Authority), and so far the EC seems to be keeping broadly with that regulator’s proposals.

As the use of commissions is widespread within the investment industry, a major source of revenues for sell side firms and independent research providers, and a way for asset managers to pay for research without damaging their own P&Ls, the proposed restrictions have created quite a stir.

However, there seems to be increasing acceptance by market participants that new rules which break the linkage between research payments and commissions are likely to be adopted. In addition, some asset managers seem hopeful that they will be able to pass the cost of research (at least partially) on to their clients via the RPA system (this statement is based on anecdotal evidence).

The impact of MiFID II on the industry is likely to be far-reaching and profound. It will be very interesting to see how the changes play out as asset managers, investment banks, independent research firms, asset owners and other market participants react to the new regulations around commissions and research payment.

The following articles may also be of interest to readers of this blog:

Latest Draft of EC Regulation Looks Grim For Commission Payments, Integrity Research.

The End of Research in Europe? The Potential Impact of MiFID II Regulations on Equity Research, Convergex

EU push on dealing commissions meets resistance, Financial Times.



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