Group Co.
MiFID II RPA Solution Providers
Traders Magazine Online News, April 26, 2017
No matter where you turn, MiFID II compliance and technology is in the news. Integrity Research has published a report where it reviews the 10 firms actively marketing new MiFID II capabilities for investment research procurement.
By reviewing the vendors focused on implementation of the new research unbundling rules, Integrity has gained excellent insights on the challenges that asset managers face with implementation of the new research unbundling rules under MiFID II. As one knows, under the new rules there are 3 ways asset managers can fund research payments: from their own pockets, through a separately identified research charge distinct from their management fees, or, in the case of equity research, alongside commission transactions. AMs choosing the transactional method of funding research (funding research alongside commissions) face the greatest implementation challenges, and many of the vendors we review are mainly focused on facilitating this approach. There is a large existing infrastructure that was set up to facilitate CSAs, and much of the that infrastructure is being re-tooled to accommodate Research Payment Accounts (RPAs). We suspect the majority of AMs will go this approach, or at least WANT to go this approach.
However, European regulators have made funding research payments alongside commissions the most operationally challenging option—hoping to induce AMs to pay for research from their P&L which is preferred by the more hardline regulators (such as the UK). In response, current CSA aggregators like Instinet, ITG, Westminster, Liquidnet have developed solutions for administering the newly mandated research payment accounts (RPAs) using much of the existing CSA infrastructure. In addition software firms with commission management expertise, like Commcise and FrostRB based in the UK and US-based IHS Markit, Castine and Investars are offering solutions also.
One issue is virtual versus physical commission aggregation. Under MiFID II, physical aggregation is necessary for RPA administration, whereas for CSAs in the US virtual aggregation remains an option. IHS Markit, which historically has offered virtual aggregation, is gearing up to offer physical aggregation in Europe. The charging mechanism will be different also. In the US CSA aggregation is largely paid for by brokers, but in Europe RPA administration will have to be paid by asset managers.
It appears that the proliferation of vendors seeking to facilitate the more challenging elements of research unbundling are making it easier for asset managers to opt to fund research payments alongside commissions, which for US asset managers is the most globally consistent approach.
To read the full report, please click here.
For more information on related topics, visit the following channels:
Comments (0)