Research Reveals Buy-Side Firms Investment in Data, Emerging Tech to Drive Growth

Editorial Staff
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Sapient Consulting, an integrated network leveraging technology to enable transformation across industries, today announced new research to understand how emerging technologies are transforming data management at buy-side firms.

New technologies and techniques are increasingly being adopted to drive greater insights, revenue and business efficiencies. The development of the cloud, big data and new database structures are at the heart of digital transformations that promise to redefine organizations strategies around data insights.

The research, conducted in conjunction with WBR Research, revealed where firms are currently investing their IT budgets, as well as how and where they anticipate IT spend will evolve over the next five years. Based on a survey of 99 senior decision markers, a number of trends emerged, including:

  • Developing technologies: big data technology including Hadoop and NoSQL are winning the largest share of IT budgets, followed closely by cloud. The move toward streaming databases is one of the transformational trends currently in play within the industry.
  • Cloud adoption accelerating: 29% of respondents stated their firms will have adopted the public cloud in two years, 42% within three years and 67% within five years. Interest is relatively spread across four diverse uses of the cloud – Platform as a Service (PaaS), Data as a Service (DaaS), Infrastructure as a Service (IaaS), Software as a Service (SaaS) – suggesting the industry is open minded to all its potential uses.
  • Visualization comes to the fore: Visualization is critical to gain value from big data investments, and holds applications for meeting regulatory challenges, gaining a single model of client behavior. With such broad applications, its not surprising that data visualization is the most invested technology type.
  • Moving past compliance: As pressure to meet regulatory standards focuses on data, the promise of transitioning into a fully business-driven unit is acting as a catalyst for the integration of emerging technologies. However, this process is only just starting, with 42% of respondents beginning to scale data management and elevate the data practice in the eyes of key stakeholders.

We conducted the survey to examine the trajectory of the data management function as it is transformed by cloud and other developing technologies and found organizations are investing heavily in emerging technologies to create better scalability, insights and opportunities, commented Chirag Shah, vice president at Sapient Consulting. It is also apparent that there is still a way to go in this evolution. Over the next five years we will see a broader and deeper use of public cloud, as well as machine learning and AI, delivering greater insight at scale through stronger analytical tools.

ITG Launches Fixed Income TCA

Editorial Staff
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ITG, an independent broker and financial technology provider, today announced the expansion of its transaction cost analysis (TCA) platform to the fixed income market. ITGs new fixed income TCA provides institutional investors with execution insight to improve fund performance, meet best execution requirements and comply with a range of upcoming regulations including MiFID II and PRIIPs.

ITGs fixed income TCA is built on a robust market data set of more than 10 million daily quotes and trades, including ECNs executions, inter-dealer quotes and FINRAs TRACE trade information. As an independent fixed income TCA provider, ITG aggregates market data and transactions from multiple, often competitive sources, resulting in a deep data pool.

Our fixed income TCA allows clients to aggregate and analyze their transaction data no matter where they execute their trades, said Kevin OConnor, global head of analytics products at ITG. This capability, along with flexible benchmarking, RFQ analysis and robust reporting supported by our global client service model differentiates us from existing offerings in the marketplace.

Also commenting on the launch, Frank DiMarco, head of fixed income analytics at ITG, noted, our clients who are engaged in multi-strategy trading can use our product to see their true net cost of trading to better evaluate their performance. The flexible interface enables traders and compliance staff to identify, comment on and manage outlier transactions.

ITGs fixed income TCA currently covers major global corporate and sovereign bond markets, with bond futures and other debt asset classes to be added in coming quarters. The new fixed income TCA product is now available for post-trade analysis and reporting, with pre-trade capabilities in development.

Transcript of SEC’s Clayton Remarks to the Economic Club of NY on July 12

Editorial Staff
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Last week, SEC Chairman Jay Clayton, gave a speech at the Economic Club of New York, and Traders Magazine has obtained a copy of his remarks. He outlined his top 8 guiding principles for his tenure and gave attendees some additional insight to the regulator’s thinking.

Below is the verbatim text of Chairman Clayton’s statement:

Thank you, Terry [Lundgren], for that kind introduction. I am delighted to speak to you here at the Economic Club of New York. The Club has established itself as an esteemed, non-partisan forum for economic discourse. It is an ideal place to discuss policy of the U.S. Securities and Exchange Commission (SEC or the Commission or the agency) and its effects on the U.S. economy and the American people. I intend to do just that in this, my first public speech as Chairman of the SEC.[1]

Nearly six months ago, my predecessor Mary Jo White gave her last public address as SEC Chair in this same forum. In her remarks, she stated I am confident in reporting that the agency is today a stronger protector of investors than ever before and much better equipped to meet the challenges of the fast-paced, complex, and interconnected securities markets of 2017.[2]I am pleased – and thankful – to say that I agree with Chair White. When I arrived at the Commission, I made it a priority to meet with staff across the agency. With each meeting, I became more impressed by the breadth of issues my 4,600 colleagues cover, and even more, by their dedication.

The Dodd-Frank Act of 2010[3]required the SEC to complete an unprecedented array of congressionally mandated rulemakings – all on top of the agencys usual work. Under Chair Whites leadership, the Commission made great strides, adopting a number of the rules with which it was charged. Admittedly, there are still Dodd-Frank mandates to be completed. But I have inherited an agency with considerably more discretion over its agenda.

Today, I will share my perspective on the Commission and the principles that should guide where we go from here. I will then talk about some of the specific areas where I believe the agency should take action in the near-term to further its mission.

I. Guiding Principles

I believe in a model of leadership that is rooted in principles. I want to outline eight principles that will guide my SEC Chairmanship.[4]

A. Principle #1: The SECs mission is our touchstone.

The SEC has a three-part mission: (1) to protect investors, (2) to maintain fair, orderly, and efficient markets, and (3) to facilitate capital formation. Each tenet of that mission is critical. If we stray from our mission, or emphasize one of the canons without being mindful of the others, investors, companies (large and small), the U.S. capital markets, and ultimately the economy will suffer.

B. Principle #2: Our analysis starts and ends with the long-term interests of the Main Street investor.

How does the SEC assess whether we are being true to our three-part mission? The answer: the long-term interests of the Main Street investor. Or, as I say when I walk the halls of the agency, how does what we propose to do affect the long-term interests of Mr. and Ms. 401(k)? Are these investors benefitting from our efforts? Do they have appropriate investment opportunities? Are they well informed? Speaking more granularly: what can the Commission do to cultivate markets where Mr. and Ms. 401(k) are able to invest in a better future?

I am confident this is the right lens for our analysis; and the one the American people would want the Commission to use. I am also confident that the women and men of the SEC share this perspective.

C. Principle #3: The SECs historic approach to regulation is sound.

Disclosure and materiality have been at the heart of the SECs regulatory approach for over eighty years. As my colleague, Commissioner Michael Piwowar, recently said, Unlike merit-based regimes, our system of disclosure comports well with American traditions … By arming investors with information, they can evaluate and make investment decisions that support more accurate valuations of securities and a more efficient allocation of capital.[5]The Commission, following the guidance of the Supreme Court, should continue to strive to ensure that investors have access to a well-crafted package of information that facilitates informed decision-making.[6]

In addition to disclosure-based rules, the SEC has placed heightened responsibilities on people and organizations that are central to, or actively participate in, our securities markets. The rules that apply to securities exchanges, clearing agencies, broker-dealers, and investment advisers (to name a few) protect markets and investors where information and market forces alone may not be enough.

The third leg of the stool – the anti-fraud regime established by Congress and the Commission – acts as a back-stop to the aforementioned disclosure rules and oversight systems. The government can bring to bear its extensive enforcement capabilities on those who try to circumvent established investor protections or otherwise engage in deceptive or manipulative acts in the markets.

In sum, I believe in the regulatory architecture that has governed the securities markets since 1933. It is abundantly clear that wholesale changes to the Commissions fundamental regulatory approach would not make sense.

D. Principle #4: Regulatory actions drive change, and change can have lasting effects.

Incremental regulatory changes may not seem individually significant, but, in the aggregate, they can dramatically affect the markets. For example, our public company disclosure and trading system is an incredibly powerful, efficient, and reliable means of making investment opportunities available to the general public. In fact, this disclosure-based regime has worked so well that we – not just the SEC, but lawmakers and other regulators – have slowly but significantly expanded the scope of required disclosures beyond the core concept of materiality. Those actions have been justified by regulators and lawmakers alike, often based on discrete, direct and indirect benefits to specific shareholders or other constituencies. And it has often been concluded that these benefits outweigh the marginal costs that are spread over a broad shareholder base.

But the roughly 50% decline in the total number of U.S.-listed public companies over the last two decades[7]forces us to question whether our analysis should be cumulative as well as incremental. I believe it should be. As a data point, over this period, studies show the median word-count for SEC filings has more than doubled, yet readability of those documents is at an all-time low.[8]

While there are many factors that drive the decision of whether to be a public company, increased disclosure and other burdens may render alternatives for raising capital, such as the private markets, increasingly attractive to companies that only a decade ago would have been all but certain candidates for the public markets. And, fewer small and medium-sized public companies may mean less liquid trading markets for those that remain public. Regardless of the cause, the reduction in the number of U.S.-listed public companies is a serious issue for our markets and the country more generally. To the extent companies are eschewing our public markets, the vast majority of Main Street investors will be unable to participate in their growth. The potential lasting effects of such an outcome to the economy and society are, in two words, not good.

E. Principle #5: As markets evolve, so must the SEC.

Continuing with the theme of change, technology and innovation are constantly disrupting – in mostly positive ways – the manner in which markets work and investors transact. The SEC must recognize this and strive to ensure that our rules and operations reflect the realities of our capital markets. As my colleague Commissioner Kara Stein has noted, We need to take into account new tensions, risks, uncertainties, and conflicts.[9]

While this dynamic atmosphere presents challenges, it also provides opportunities for improvements and efficiencies. It is our job as regulators to find these. Technology is not just the province of those we regulate. The SEC has the capability to develop and utilize it, too. We apply sophisticated analytic strategies to detect companies and individuals engaging in suspicious behavior. We are adapting machine learning and artificial intelligence to new functions, such as analyzing regulatory filings.

As the SEC evolves alongside the markets, however, we must remember that implementing regulatory change has costs. Companies spend significant resources building systems of compliance, hiring personnel to operate those systems, seeking legal advice concerning the design and effectiveness of those systems, and adapting the systems as regulations change. Shareholders and customers bear these costs, which is something that should not be taken lightly, lest we lose our credibility as regulators.

F. Principle #6: Effective rulemaking does not end with rule adoption.

With respect to rulemaking, the SEC has developed robust processes for obtaining public input and is committed to performing rigorous economic analyses of our rules, at both the proposing and adopting stages. These efforts are critical to identifying the benefits and costs of regulatory actions, including situations where a rules effects may not be consistent with expectations. But we should not stop there.

The Commission should review its rules retrospectively. We should listen to investors and others about where rules are, or are not, functioning as intended. We cannot be shy about being introspective and self-critical.

G. Principle #7: The costs of a rule now often include the cost of demonstrating compliance.

Rules are meant to be followed, and the public depends on regulators to make sure that happens. It is incumbent on the Commission to write rules so that those subject to them can ascertain how to comply and – now more than ever – how to demonstrate that compliance. Vaguely worded rules can too easily lead to subpar compliance solutions or an overinvestment in control systems. We must recognize practical costs that are sure to arise. For example, when the SEC requires a Chief Executive Officer to make a certification that a specific requirement has been met, while he or she retains ultimate responsibility, realistically, it should be expected that the responsibility will be supported through the chain of command in a demonstrable manner. This can be an expensive practice that goes well beyond a prudent management and control architecture; when third parties, such as auditors, outside counsel, and consultants, are involved, the costs – financial costs and, in many ways more important, the cost in terms of time – can skyrocket. This may be the appropriate regulatory approach, and to be clear, in some areas I think it is. However, the Commission needs to make sure at the time of adoption that we have a realistic vision for how rules will be implemented as well as how we and others intend to examine for compliance.

H. Principle #8: Coordination is key.

Last, the SEC shares the financial services space with many other regulatory players charged with overseeing related or overlapping industries and market participants.[10]The Commission works alongside more than 15 U.S. federal regulatory bodies, over 50 state and territory securities regulators, the Department of Justice, state attorneys general, self-regulatory organizations (SROs), and non-SRO standard setting entities. We also participate in several major international bodies and cooperate with regulators in over 115 foreign jurisdictions. Coordination with, between, and among all these organizations is essential to a well-functioning regulatory environment.

One such area where coordination is essential is our regulatory scheme governing over-the-counter derivatives. Congress established, through Title VII of the Dodd-Frank Act, a dual regulatory structure for these instruments: the SEC was assigned authority over security-based swaps, and the Commodity Futures Trading Commission (CFTC) was assigned authority over swaps. For this structure to be effective, there must be close coordination between the SEC and CFTC. I am fully committed to that. I am also committed to working with the CFTC to explore ways in which the agencies can achieve greater harmonization of Title VII rules and reduce unnecessary complexity as well as costs to both regulators and market participants. Having said that, importantly, all such efforts will need to take into account statutory variances as well as differences in products and markets.

Speaking more generally, cybersecurity is also an area where coordination is critical.[11]Information sharing and coordination are essential for regulators to address potential cyber threats and respond to a major cyberattack, should one arise. The SEC is therefore working closely with fellow financial regulators to improve our ability to receive critical information and alerts and react to cyber threats.[12]

II. Putting Principles into Practice

Lets turn from principles to practice. There are some particular places where I see opportunities to apply these principles to the SECs agenda.

A. Enforcement and Examinations

The SEC has strong and active enforcement and examination programs. I fully intend to continue deploying significant resources to root out fraud and shady practices in the markets, particularly in areas where Main Street investors are most exposed. Terms like affinity fraud and microcap fraud sound unremarkable and remote on paper, but they are sinister behaviors that strike at Americans vulnerabilities.

Investors should know that the SEC is looking out for them. In this regard, we are taking further steps to find and eliminate from our system pump-and-dump scammers, those who prey on retirees, and increasingly those who use new technologies to lie, cheat, and steal. Turning to the more sophisticated participants in our markets, the Commission will continue to use its enforcement and examination authority to support market integrity. We are committed to making our markets as fair, orderly, and efficient – and as liquid – as possible. I know market professionals are critical to, and enhance, the operation of our markets. I also know they know the rules and principles, and I expect them to adhere to and be guided by them. You have a special place in our economy, do not take unfair advantage of it.

As a final comment on enforcement, I want to go back to cybersecurity. Public companies have a clear obligation to disclose material information about cyber risks and cyber events. I expect them to take this requirement seriously. I also recognize that the cyber space has many bad actors, including nation states that have resources far beyond anything a single company can muster. Being a victim of a cyber penetration is not, in itself, an excuse. But, I think we need to be cautious about punishing responsible companies who nevertheless are victims of sophisticated cyber penetrations. Said another way, the SEC needs to have a broad perspective and bring proportionality to this area that affects not only investors, companies, and our markets, but our national security and our future.

B. Capital Formation

I have been vocal about my desire to enhance the ability of every American to participate in investment opportunities, including through the public markets. I also want American businesses to be able to raise the money they need to grow and create jobs. As I mentioned earlier, evidence shows that a large number of companies, including many of our countrys most innovative businesses, are opting to remain privately held. Just yesterday I met with a broad group of businesses at different stages of capital raising and heard firsthand about the regulatory requirements and other considerations that factor into their decision to stay private or go public. One message was loud and clear: private markets operate well in many sectors and, in these areas, they offer a very attractive alternative to the public markets. I believe we need to increase the attractiveness of our public capital markets without adversely affecting the availability of capital from our private markets.

As an agency, we have learned a great deal while implementing the JOBS Act on-ramp for emerging growth companies (EGCs).[13]The JOBS Act allows issuers with less than roughly $1 billion in revenue to submit their draft registration statements confidentially and phase in their reporting obligations gradually. This regime has had a clear appeal to EGCs. Since the enactment of the JOBS Act, approximately 87% of the initial public offerings (IPOs) that have gone effective were for EGCs, and the vast majority of these companies have relied to some extent on the confidentiality and gradation components of the JOBS Act.[14]

Starting this past Monday, the JOBS Act approach is accessible more broadly. The SECs Division of Corporation Finance non-public review process is now open to IPO draft registration statements from larger domestic and non-U.S. companies that do not qualify as EGCs.[15]I hope that allowing these companies to submit their sensitive information on a non-public basis while the Commission staff reviews their draft offering documents will encourage them to find the prospect of selling their shares in the U.S. public markets more attractive generally, and at an earlier stage in their development.[16]

My last point on capital formation is a reminder. There are circumstances in which the Commissions reporting rules may require publicly traded companies to make disclosures that are burdensome to generate, but may not be material to the total mix of information available to investors. Under Rule 3-13 of Regulation S-X, issuers can request modifications to their financial reporting requirements in these situations. I want to encourage companies to consider whether such modifications may be helpful in connection with their capital raising activities and assure you that SEC staff is placing a high priority on responding with timely guidance.

C. Market Structure

Regarding equity market structure, an enormous amount of thought – at the Commission, in Congress, and in the private sector – has been devoted to this topic. While there are certainly challenging issues that merit further consideration, it is time to shift the focus to action. One recommendation where there is broad consensus to proceed is the launch of a pilot program to test how adjustments to the access fee cap under Rule 610 of the Securities Exchange Act of 1934 would affect equities trading.[17]Such a pilot should provide the Commission with more data to assess the effects of access fees and rebates – including maker-taker and other pricing systems – on liquidity provision, liquidity taking, and order routing. These, in turn, affect the functioning of markets and investor welfare. I expect the Commission will consider a proposal of this type in the coming months.

The SECs Equity Market Structure Advisory Committee (EMSAC) has provided the Commission with valuable perspectives on these and many other issues. The committees charter is set to expire next month. My hope is that EMSACs tenure is extended into 2018.

Let me make one additional point about market structure. The time is right for the SEC to broaden its review of market structure to include specifically the efficiency, transparency, and effectiveness of ourfixed income markets. As waves of Baby Boomers retire every month and need investment options, fixed income products, which are viewed as a stable place to store hard-earned money, will attract more and more Main Street investors. Yet, many of those investors may not appreciate that fixed income products are part of markets that differ significantly from the better-known equities markets.

The Commission must explore whether these markets are as efficient and resilient as we expect them to be, scrutinize our regulatory approach, and identify opportunities for improvement. To that end, I have asked the staff to develop a plan for creating a Fixed Income Market Structure Advisory Committee. Like the EMSAC, this committee would be made up of a diverse group of outside experts, who will be asked to give advice to the Commission on the regulatory issues impacting fixed income markets. I am also pleased to note that this week, Chairman Hensarling and Chairman Huizenga of the House Financial Services Committee and its subcommittee on Capital Markets, Securities, and Investment have called for a hearing on fixed income market structure,[18]and I look forward to working with Congress on these issues.

D. Investment Advice and Disclosures to Investors

1. Fiduciary Rule

Another area that has been the subject of extensive study is the standards of conduct that investment professionals must follow in providing advice to Main Street investors. With the Department of Labors Fiduciary Rule now partially in effect, it is important that the Commission make all reasonable efforts to bring clarity and consistency to this area. It is my hope that we can act in concert with our colleagues at the Department of Labor in a way that best serves the long-term interests of Mr. and Ms. 401(k).

There is a lot of work to do, and this issue is complex. That should not deter us, and we are moving forward. In June, I issued a statement seeking public input on standards of conduct for investment advisers and broker-dealers.[19]The Commission had last solicited information on this issue four years ago. Suffice it to say a lot has happened since then. Robust public comment can help us evaluate potential regulatory actions in light of current market activities and risks. And, any action will need to be carefully constructed, so it provides appropriate and meaningful protections but does not result in Main Street investors being deprived of affordable investment advice or products. I encourage the public to send us feedback and any data that may be helpful to us. Instructions for how to submit this information are available onwww.sec.gov.

2. Improving Disclosure to Investors

Regardless of whether investors participate in our markets directly or indirectly, and with or without investment advice, it is clear that they and their advisors must have access to information about potential investments that is easily accessible and meaningful. The Commission has several initiatives underway to improve the disclosure available to investors. For example, last November, the SEC staff issued a report recommending ways to modernize and simplify Regulation S-K disclosure rules.[20]This report also included recommendations on how to improve the readability and the navigability of disclosure. The staff is making good progress on preparing rulemaking proposals based on this report for the Commission.

E. Resources to Educate Investors

No matter how robust our enforcement and examination programs, the reality is that the SEC cannot be everywhere. The agency has exceptional tools that can help investors research professionals giving them investment advice, spot signs of fraud, and take action to protect themselves.

A priority for me is getting the wealth of information that the SEC has into the hands of investors, through whatever means can reach them. Among other things, we are leveraging technology to do this, including conducting data analyses to assess how individual investors interact with the SEC and where and how we can increase engagement. Commission staff also has efforts underway to simplify and enhance resources to educate investors on how to conduct online background searches on investment professionals and make informed decisions about whether to establish financial relationships. In this regard, I have a short but important message for Main Street investors: the best way to protect yourself is to check out who you are dealing with, and the SEC wants to make that easier.[21]

III. Conclusion

In my 70 days since joining the SEC, I have become aware of some of the challenges ahead. The Commission has no choice but to face any challenges – both the ones we know and those we will come to know – head-on. As we take that journey, I am fortunate to be surrounded by a tremendously talented set of public servants in the SEC staff and my fellow Commissioners. I aim to apply a level of dedication and hard work that matches their own.

Thank you.

  • [1]My words are my own and do not necessarily reflect the views of my fellow Commissioners or the SEC staff.
  • [2]Chair Mary Jo White, The SEC after the Financial Crisis: Protecting Investors, Preserving Markets (January 17, 2017),https://www.sec.gov/news/speech/the-sec-after-the-financial-crisis.html.
  • [3]The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111-203, 124 Stat. 1376 (the Dodd-Frank Act).
  • [4]On February 3, 2017, President Donald J. Trump issued an executive order setting forth seven core principles intended to form the basis for his administrations regulation of the U.S. financial system. See Presidential Executive Order on Core Principles for Regulating the United States Financial System (February 3, 2017),https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-executive-order-core-principles-regulating-united-states. I believe the principles articulated here are consistent with, and complementary to, the broader principles for financial regulation set forth by the President.
  • [5]Acting Chairman Michael S. Piwowar, Remarks at the SEC Speaks Conference 2017: Remembering the Forgotten Investor (February 24, 2017),https://www.sec.gov/news/speech/piwowar-remembering-the-forgotten-investor.html. See alsoCommissioner Daniel M. Gallagher, Remarks to the Forum for Corporate Directors, Orange County, California (January 24, 2014),https://www.sec.gov/news/speech/2014-spch012413dmg(The SEC is, first and foremost, a disclosure agency. Our bedrock premise is that public companies should be required to disclose publicly and in a timely fashion the information a person would need in order to make a rational and informed investment decision.).
  • [6]See TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) (An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.…Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.). See also Basic Inc. v. Levinson, 485 U.S. 224 (1988).
  • [7]The total number of listed companies in 2016 was approximately 4,300, compared to about 8,100 in 1996. Commission staff produced these estimates using data from the Center for Research in Securities Prices US Stock and US Index Databases (2016), The University of Chicago Booth School of Business.
  • [8]See, e.g., Travis Dyer, Mark Lang, Lorien Stice-Lawrence, The Evolution of 10-K Textual Disclosure: Evidence from Latent Dirichlet Allocation (October 2016). See also SEC Office of the Investor Advocate, Report on Objectives: Fiscal Year 2017 (June 30, 2016),https://www.sec.gov/advocate/reportspubs/annual-reports/sec-office-investor-advocate-report-on-objectives-fy2017.pdf, at 5 (Given the important role of disclosure, the requirements for various types of disclosure are robust. As a result, an S-1 or 10-K can be hundreds of pages long, and the length and complexity of the disclosures has led many to question whether the disclosure requirements are properly calibrated to effectively communicate all material information to investors while eliminating immaterial, outdated, or duplicative data that may dilute the impact of the more meaningful disclosures.).
  • [9]Commissioner Kara M. Stein, Remarks at the Meeting of the Equity Market Structure Advisory Committee (April 26, 2016),https://www.sec.gov/news/statement/stein-statement-emsac-042616.html.
  • [10]As the Treasury Department recently noted in its first core principles report, Increased coordination on the part of [financial] regulators will identify problem areas and help [them] prioritize enforcement actions. U.S. Dept. of Treasury, A Financial System that Creates Economic Opportunities: Banks and Credit Unions (June 2017), at 10,https://www.treasury.gov/press-center/press-releases/Documents/A%20Financial%20System.pdf.
  • [11]See id. at 123.
  • [12]The SEC is a member of the Financial and Banking Information Infrastructure Committee.
  • [13]The Jumpstart Our Business Startups Act, Pub. L. 112-106, H.R. 3606 (the JOBS Act),http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf.
  • [14]See Ernst & Young LLP, Update on emerging growth companies and the JOBS Act (November 2016),http://www.ey.com/Publication/vwLUAssets/ey-update-on-emerging-growth-companies-and-the-jobs-act-november-2016/$FILE/ey-update-on-emerging-growth-companies-and-the-jobs-act-november-2016.pdf, at 6.
  • [15]See SECs Division of Corporation Finance Expands Popular JOBS Act Benefit to All Companies (June 29, 2017),https://www.sec.gov/news/press-release/2017-121. See also SEC Division of Corporation Finance, Voluntary Submission of Draft Registration Statements – FAQs (last modified June 30, 2017),https://www.sec.gov/corpfin/voluntary-submission-draft-registration-statements-faqs.
  • [16]The Division of Corporation Finance will also accept draft registration statements for non-public review for many companies throughout their first year in the SECs reporting system. This is meant to encourage newly reporting companies to explore follow-on capital raises in the public markets, which could present additional investment opportunities for retail investors and add liquidity to a newly public companys shares. See id. The experience with the JOBS Act confidential review process demonstrates that this approach is fully consistent with investor protection. Companies are still required to publicly file their disclosure documents well before they begin their road shows. That said, in the spirit of being retrospective, I am open to continuing to examine whether the SEC has struck an appropriate balance between the capital formation and investor protection tenets of our mission.
  • [17]SEC Equity Market Structure Advisory Committee, Recommendation for an Access Fee Pilot (July 8, 2016),https://www.sec.gov/spotlight/emsac/recommendation-access-fee-pilot.pdf.
  • [18]See Hearing of the House of Representatives Committee on Financial Services, A Review of Fixed Income Market Structure (scheduled for July 14, 2017),https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=402101.
  • [19]Statement of SEC Chairman Jay Clayton, Public Comments from Retail Investors and Other Interested Parties on Standards of Conduct for Investment Advisers and Broker-Dealers (June 1, 2017),https://www.sec.gov/news/public-statement/statement-chairman-clayton-2017-05-31.
  • [20]SEC Division of Corporation Finance, Report on Modernization and Simplification of Regulation S-K (November 23, 2016),https://www.sec.gov/files/sec-fast-act-report-2016.pdf. This report was required by Section 72003 of the Fixing Americas Surface Transportation Act, Pub. L. No. 114-94, 129 Stat. 1312 (2015).
  • [21]The agency is trying different approaches. For example, in addition to our ongoing efforts to create and disseminate educational content throughwww.investor.govand other platforms designed for retail investors, we recently posted a short video on the SEC website that includes tips for investors to avoid falling victim to fraud. See SEC Office of Investor Education and Advocacy, Straight Talk: From the SEC (June 29, 2017),https://investor.gov/additional-resources/specialized-resources/public-service-campaign.

TRADING THE WEEK: Volume Falls But Bullish Sentiment Remains

Editorial Staff
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Buy in May and go away?

That seems to be the prevailing sentiment on Wall Street trading desks as several traders reported thin dealings last week and expect more of the same this week. While the DJIA Industrial Index set new record highs on Thursday and pushed fresh highs on Friday, S&P 500 and NASDAQ comp are knocking on the door to new highs as well. But that failed to generate much trading activity. Stocks across the globe traded higher Thursday after Fed chair Janet Yellen struck a slightly less hawkish tone than expected, emphasizing her concerns about low inflation. During her testimony, Fed Chair Janet Yellen urged Congress to take into account the growth trajectory of the federal debt when making decisions about spending and taxation.

Also, earnings season for the second quarter began last week and will be in full swing this week – continuing to keep a lid on activity. And speaking of volume, trading last week dropped below 6 billion shares to an average of 5.91 billion shares, compared to the 6.37 billion shares the week prior, according to BATS Global Markets. Three weeks ago, volume was 7.46 billion shares per day, according to Bats.

Equities, despite the current summer malaise, can still find support as many are too afraid to sell in a flat to rising rate environment. Just Friday, Credit Suisse raised its year-end forecast for the S&P 500 and told investors to “stick with equities.” In a note the broker published, its head of global equity said “the bull market will continue” because interest rates will remain low, earnings will come in stronger than expected and the normal signs of a peak in the credit cycle are simply not there.

Quoted first on CNBC, the analyst, Andrew Garthwaite, said that perhaps the most important factor of the current bull market is a slowdown in wage growth.

“The critical issue is that the acceleration in U.S. wage growth that had been evident has slowed down,” he said. He went on to say the labor force is “unlikely” to command more pricing power until other, tighter labor markets like the United Kingdom or Japan experience acceleration in wage growth.

Larry Peruzzi, Managing Director International Equities at Mischler Financial reported Traders and investors returned last week from the previous holiday-shortened week on Monday with the same resolve – not to do much.

They were not willing to outright sell and not looking to make large bets, Peruzzi began. As a result, U.S and global markets resumed their slow, steady and non-volatile rise to new records. The MSCI all country world index closed Thursday at an all-time high. Thursdays June PPI data was largely in line which failed to move the markets.

Also, adding credence to the no Fed for a while sentiment, the consumer price index, measuring what consumers pay for everything from apparel to used cars, was unchanged in June from the prior month. From a year earlier, the CPI was up 1.6 percent, the fourth month of surprising weakness. Excluding food and energy, the core prices rose 0.1 percent, compared to expectations of 0.2 percent.

Also, retail sales fell 0.2 percent in June, down for a second straight month. The back-to-back monthly decline was the first time two months in a row posted lower consecutive gains since last summer.

Inflation seems to be contained and as much as the Fed would like to raise rates there is little evidence to support that notion right now, Peruzzi said. As a result, probability of a July 26th rate hike is now 0% and September 20th probability dropped to 10.1%.

With equities mired in a summer trading range amid low volatility, traders are finding fewer and fewer trading opportunities. After digesting all of last weeks economic data, fed funds futures were reflecting odds for another rate hike this year of just 46 percent, down from 52 percent before the data.

Also on the Fed front, traders noticed that financial conditions have begun to tighten as the markets accept the Central Banks resolve to wind down its post-crisis stimulus efforts. The Goldman Sachs U.S. Financial Conditions Index has begun to climb, along with 10-year Treasury yields and in statements made last week, Chair Janet Yellen told the House Financial Services Committee that the well-publicized reduction of the Federal Reserve’s balance sheet “should begin relatively soon.” The balance sheet probably won’t reach pre-crisis levels until 2022, she added, signaling an orderly and gradual reduction process.

In other news, regulatory demands for initial public offerings could be contributing to companies’ reluctance to go public, suggested Securities and Exchange Commission Chairman Jay Clayton. In remarks made in NYC last week at the New York Economic Club, he said the drop in the number of publicly listed companies correspondingly limits investors’ access to investment opportunities. “The potential lasting effects of such an outcome to the economy and society are, in two words, not good,” Clayton said.

Also, 11 members of Congress filed a letter with the Securities and Exchange Commission protesting the bourses acquisition by China-based Chongqing Casin Enterprise Group. The SEC had extended the comment period earlier this year so as to conduct a thorough survey of public opinion. CCEG also has U.S. investors in the group. In the letter, the politicians said, “With little or no insight and transparency into government-dominated Chinese markets, the SEC will be unable to monitor the ownership structure of CCEG after approval, leaving CHX open to undue, improper, and possibly state-driven influence.

Lastly, ETF inflows, according to State Street Global Advisors, are off to a phenomenal start this year. The firm reported that through the first six months of 2017, US-listed ETFs have amassed over $245 billion of inflows – the best start to a year in the ETF industrys 24 years. SSGA analysts noted that equities overall have seen $172 billion in inflows this year or 50% of last years entire take. This is a staggering feat, they said, considering that at this juncture in 2016, equity inflows were actually negative.

This Weeks U.S. Economic Indicators of Interest:

Monday Empire State Mfg Index

Tuesday

Redbook Retail Sales

Wholesale Trade

Import/Export Prices

Housing Market Index
Wednesday

Housing Starts
Thursday

Jobless Claims

PPI

Philadelphia Fed Business Survey

Friday

Leading Economic Indicators

No Data

MackeyRMS Announces Integration of ONEaccess’ Corporate Access & Interactions Data

Editorial Staff
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MackeyRMS, a provider of highly automated and ultra-mobile research management software, and ONEaccess, a corporate access and research valuation platform, announced a new integrated solution that allows clients to discover ONEaccess corporate access events and interactions information alongside proprietary investment content already found in MackeyRMS.

“We are thrilled to partner with ONEaccess,” said Chris Mackey, CEO and Founder of MackeyRMS. “With MiFID II around the corner, investment management professionals increasingly view their research management platform as an invaluable piece of the compliance puzzle. This integration is extremely timely and increases the breadth of relevant content our clients can utilize within their research platform.”

“Putting a research evaluation workflow in place is paramount for global asset managers as they prepare to comply with MiFID II regulations,” said Mike Stepanovich, CEO of ONEaccess. “By integrating with Mackey, firms can now access the deepest and most accurate data for completing an in-depth analysis of the corporate access and research they consume.”

The integration will provide clients with access to Mackey’s proprietary investment content such as notes, files, emails and investment templates, alongside the added value derived from ONEaccess’ corporate access events and interactions information. This partnership demonstrates MackeyRMS’ ongoing commitment to innovate and evolve its technology in order to streamline client workflows, driving efficiency and ultimately profitability.

FLASHBACK FRIDAY: The Two IPOs of the Century?

Editorial Staff
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Almost two decades ago, the IPO craze was hitting the stock market – literally – as both the NYSE and its main competitor NASDAQ – were both considering going public and moving to a profit-oriented model. But has the exchanges shift towards money-making enterprises hindered their primary mission as being the place where companies could come too raise capital?

Spencer Mindlin, analyst at Aite Group explained that back in 1999, the exchanges were under co-operative ownership and as a result were left behind in a rapidly changing market structure and the on-going advances in electronic trading. They were losing market share to newly launched electronic communications networks, ushered in by recent changes to regulation.

“It is unlikely that the exchange members would have had the fortitude to effect the required transformation. Going public likely saved the exchanges,” Mindlin told Traders Magazine. “Once the exchanges went public though, management’s duties shifted from the member firms to the thousands of shareholders. And it’s a difficult scale to balance with so many varying interests: the exchanges shareholders, the companies that choose to list on their exchange, the exchange’s customers, and the country’s investing public. Conflicts abound.”

Exchanges are a fixed-cost, scale business, he added. The exchange must compete, and in a scale business they need to focus on their return on assets. “They would be remiss if they didn’t seek ways to leverage their scale and provide products beyond basic order matching. This ultimately brings down costs for the entire industry.”

Richard Repetto, Principal at Sandler O’Neill Partners said he believed the IPOs of the NYSE and Nasdaq drove broad changes at these national exchanges. And those changes, he added, were good for the market and investors.

“The drive for efficiency, namely through technology and automation, moved to the forefront of the exchanges priorities as the benefits to membership was no longer their prime objective,” Repetto said. “The exchanges became more nimble, entrepreneurial, and diversified as profits & profitability became critically important to the exchanges.”

So where does that leave us?

“Despite the fact that U.S. Exchanges have been publicly traded for over a decade, the debate over whether this is good or bad for the marketplace still continues,” said Adam Sussman, Head of Market Structure at Liquidnet. “On the one hand, some of the fears that brokers had in the lead-up Exchange public listings have come true. For example, Exchanges have become a more direct competitor by offering outbound routing. Other market participants feared Exchanges would take advantage of their regulatory status. The lack of non SRO representation on NMS Plan rulemaking and decisions and the subsequent inclusion of rules favoring Exchanges in the Tick Pilot validates this fear.”

On the other hand, Sussman added, as publicly-traded entities, Exchanges have delivered scale and breadth to global capital markets via mergers and expansion into new asset classes and services.

“Its hard to be a capitalist and argue against its efficiency in the one market where competition can hurt you.”

The following article appeared in the July 1999 edition of Traders Magazine

The Two IPOs of the Century?

By William Hoffman

The New York Stock Exchange is looking to go public, a move that comes just a few weeks after Nasdaq said it might do the same thing.

Asked about these reports, a Big Board spokesman Ray Pellecchia said the exchange had no comment.

But days later the Wall Street Journal reported that Big Board staffers had quietly approached investment banking giants Merrill Lynch & Co. and Salomon Smith Barney to explore the IPO route. That is the same route that Frank Zarb, chairman of the National Association of Securities Dealers, held out as an option for Nasdaq in the NASD’s ongoing restructuring efforts.

Merrill Lynch and Salomon Brothers, along with several other Wall Street investment banks, declined to comment on both the NASD and Big Board reports.

But some traders were not so reticent.

“I’m in favor of an IPO for both exchanges if it materially benefits the bottom line of our firm,” said Ben Marsh, head of Nasdaq trading at Boston-based Adams, Harkness & Hill, an NASD and Big Board member firm.

Disparaging of the Idea

The Big Board has been almost disparaging of the idea of an IPO for its organization. Big Board Chairman Richard Grasso was quoted in May saying that, with only 18 percent of trading systems capacity used during an average day, analysts and shareholders might demand a career change for a chief executive who suggested taking the exchange public. Nonethless, the Big Board needs to invest in extra capacity for trading spikes, Grasso noted. “Those are investments, as a public company, I’m afraid we would not be willing to make,” he said.

According to the Wall Street Journal, however, it was Grasso who instructed Big Board staffers to approach Merrill Lynch and Salomon Brothers.

By contrast, NASD Chairman Frank Zarb, recently addressing the National Press Club in Washington, said an IPO is one option executives are considering to revamp the organization.

Most recently, the NASD board increased the likelihood of an IPO for Nasdaq. The board authorized a plan that calls for staff to consult with NASD members on the implications of a for-profit Nasdaq in which the NASD is a minority partner.

The plan also requires the NASD staff to start work on the registration process with the Securities and Exchange Commission and, separately, to make provisional agreements with potential equity participants.

Stock exchange IPOs offer interesting possibilities, some experts say. “It struck me as innovative, to say the least,” said Kathleen Cerveny, a partner at Falls Church, Va., commercial law firm Hazel & Thomas, PC. Joel Barth, principal in the corporate finance group at regional accounting and consulting firm Richard A. Eisner & Co., in New York, said of Nasdaq, “It’s a brand name known ’round the world, which portends well for an IPO. It’s unique.” No doubt the same is true for the NYSE.

Cash Flow

Stock markets especially Nasdaq offer a steady cash flow from fees, observers noted. A publicly-traded exchange stock could also forestall opposition to NASD self-regulatory plans.

These plans include the revived yet still contentious consolidated limit order book and the pending agency quote proposal. Some traders and broker dealers are hot under the collar, arguing that the agency quote proposal could make the organization a competitor of its own member firms.

NASD’s future plans – including extended trading hours, expansion in Asia, enhanced cooperation with the American Stock Exchange, and development of an electronic futures contract business – could also be invigorated by a public stock offering.

Of course, there are challenges aplenty. One controversy to be settled between the two exchanges would be the future of their self-regulatory organizations. Zarb suggested in a press statement that NASD Regulation, the regulatory arm of the NASD, could be spun off “into a well-funded, stronger independent entity to be merged with the New York Stock Exchange’s for efficiency, savings and higher quality.”

But so far, the Big Board is having none of that, according to Pellecchia.

The Big Board prefers the idea that it will continue to police itself, while NASD Regulation assumes self-regulatory oversight for itself and the rest of the securities markets, Pellecchia said. That doesn’t appear to be what Nasdaq managers want.

“We’ve got nothing in mind at this point as far as next steps,” Pellecchia said. “But I’m sure the [Nasdaq and the Big Board] will continue to talk with the industry and the regulators about it.”

Industry experiences with the demutualization of insurance companies and public offerings by banks and brokerages offer some guidance.

“The Nasdaq initial public offering would be subject to the same risks and vagaries of the market” as more conventional IPOs, Cerveny said. Certainly the same could be said for a Big Board IPO.

Audited financial statements shouldn’t be a problem, Barth said. Both Big Board and Nasdaq are highly-visible organizations at the pinnacle of one of America’s most influential and regulated industries. Each should easily be able to assemble and present the public disclosure required of any company registering an offering stock.

Tax issues should also pose minimal exposure to the executives who organize and participate in a Nasdaq IPO, Barth said. The IPO itself can probably be conducted free of any tax, though shareholders would be assessed as they trade the stock and enjoy any gains.

Over-centralization of any first distribution could be an issue, though Barth said there should be enough participants that this, too, won’t complicate the process.

However, Cerveny noted that the extent of public disclosure required in an IPO by federal law could make exchange executives think twice.

Income and outlays, historical details of governance and operations, would have to be laid bare for the scrutiny of investors, regulators – and competitors. Past strategic and management decisions could be critiqued by member firms; future expansion and restructuring plans could be second-guessed or mimicked by competitors. Balancing the need for capital against the rigor of disclosure could put a chill on executives’ enthusiasm for the IPO process, Cerveny said.

Nominal Control

More daunting might be the reaction of exchange listed firms working with an organization over which they had once exercised nominal control, transformed by an IPO into a profit-seeking independent service company.

Cerveny wondered whether member firms would find themselves shut out of the management of the new company. What strategies would broker dealers use to make a market in a stock listed on the same exchange in which it is traded? Would traders find themselves conflicted about dealing with an equity for an exchange in which their own clients are active? Could so-called “Chinese walls” keep everyone honest?

Everyone knows what would happen if a Nasdaq or Big Board IPO were successful: Ground-floor investors would get rich, and others who got in early could also make a tidy profit.

What happens if the subsequent issue fails is less clear. Obviously, fewer people would make money on the stock. But sliding performance of listed stocks would reflect poorly on other exchange listed stocks, Cerveny and Barth agreed.

Traders and broker dealers might find themselves captive aboard a foundering ship, and managers of listed equities could run for the lifeboats.

Adams, Harkness & Hill’s Marsh said one of the questions concerns how Nasdaq would spend the money raised through an IPO. “Nasdaq is making so much money right now it doesn’t know what to do with it,” he said. “Will it know how to spend the money sensibly after an IPO?”

For now, the industry seems tantalized by the potential of a Nasdaq – and now possibly an NYSE – public offering. Cerveny, who has shepherded companies though the IPO process and onto Nasdaq, said, “I’d be interested in seeing the prospectus.”

Markets Media 2017 FinTech Trading Summit – The Candids

Editorial Staff
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Markets Media 2017 FinTech Trading Summit – The Candids

New RPA Solution from IHS Markit Addresses MiFID II Challenge for the Buyside

Editorial Staff
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IHS Markit announced the launch of RPA Manager, a comprehensive service helping asset managers acquire investment research in compliance with MiFID II.

To reduce the potential for conflicts of interest, MiFID II requires asset managers to separate payments for research from trading commissions due to brokers that provide research. If an asset manager intends to use its clients assets to fund research payments, the manager must disclose research fees, allocate those fairly among client accounts, and receive client approval for research expenses. Payments must be made from segregated research payment accounts (RPAs) created by the asset manager.

The new RPA Manager solution provides an online toolset to assist firms in adhering to MiFID II requirements, including research budget calculation, tracking and allocation, managing funding of the RPA through direct debit or commission sharing agreements, reconciliation, reporting and document management. The solution will also soon integrate with the SWIFT network and help firms manage payments through a single interface for sending payment instructions to and receiving activity notices from the bank of their choice.

Commission unbundling creates a series of operational and procedural challenges for asset managers. Solutions like RPA Manager will help trading, operations and compliance teams ensure they are synchronized and positioned to comply with MiFID II requirements related to investment research, said Spencer Mindlin, analyst at Aite Group specializing in capital markets technology.

Unlike other major regulations in capital markets, which have largely impacted sellside institutions, MiFID II imposes significant burdens on asset managers, said Michael Aldridge, managing director at IHS Markit. With RPA Manager and integrations to our other Brokerage and Research Services tools, we can offer firms an easy to deploy, scalable solution for administering research payments, tracking the quality of research, accounting for commissions and more.

RPA Manager integrates with other research management services from IHS Markit, including Broker Vote and Commission Manager, to provide a holistic research, commission and payment management solution.

Asset managers are bracing for an increase in operational intensity driven primarily by the looming MiFID II deadline, said Tom Conigliaro, managing director at IHS Markit. We are actively collaborating with customers on the design and implementation of a holistic workflow solution that will bridge our multiple services to help fund managers administer newly regulated activity, such as managing commissions and tracking and evaluating research.

For asset managers seeking to outsource the administration of RPAs, IHS Markit plans to offer a service that can perform due diligence, governance and reconciliation activity on their behalf.

Solving the Last Mile Problem in Investment Research

Editorial Staff
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Solving the Last Mile Problem in Investment Research

Much of the news around the impact of MiFID II on research has focused contextualising the challenges of unbundling through the lens of the industrys idiosyncratic evolution and how market participants attempt to value services and implement market structures. But looking ahead, how will the research value proposition change over the short to medium term, and what are the products and strategies managers will turn to?

At its core, the raison d’etre of research is to support better investment decisions and improve outcomes. However, many research firms take an economistic or journalistic view when defining value, assuming that if they produce the best content, rational consumers will beat a path to their door.

However, building a better mousetrap is no longer enough (if it ever really was). And innovative providers and ecosystem players now recognise that while content may be king, it has to be accessible, actionable and integrated, to be of superior value. If you do not understand why – take a stroll in the park on a hot summers day and observe the queue of people paying three times the supermarket price for a can of cola from a strategically placed stall.

Driven by the valuation process, the research industry is undergoing a metamorphosis from content-based products, to information/analytics, workflow tools and ultimately a set of tailored solutions.

Research, research everywhere

Do you know how many research emails I receive on a daily basis? Asked the hedge fund manager as he leant back in his chair. Over 500! he responded to his own question.

How do you get through them all and identify the most valuable insights? I queried. I dont. he responded, disappointed I had somehow missed his point.

The fact is, investment professionals do receive a lot of research, but rather than volume being a metric to demonstrate status within some perverse pecking order, it simply compounds a problem that should determine rank – better investment decisions.

How do professionals discover high quality research that is relevant to their investment process? In the past, they have applied heuristics such as following specific authors, scanning subject headers or relying on curation by a salesperson/account manager. But this has always been a flawed process exposed by increasing volumes of content. Now, innovative firms are leveraging behavioural insights and new technology to tackle the issue head on.

Firstly, the research report is changing. Editors, for many reasons – some legitimate and some subversive, have often made reports more difficult to derive insight from, than is necessary. This is changing – for example, with the help of a team of psychologists, UBS has updated the structure of their reports, to improve clarity and accessibility.

Secondly, more research is being delivered in rich multimedia formats. Podcasts, webinars, videos and dedicated mobile content are all on the rise. This supports deeper insights and more efficient multi-tasking.

To support discovery, semantic search algorithms, machine learning and natural language processing have replaced email based heuristics to create personalised, curated feeds of contextualised research insights (trying saying that after a few beers), applying Google-like search to the vast body of research content.

Now, as a Portfolio Manager disembarks from a flight to Hong Kong, a research provider sends her an automated alert with a view on China and the most recent report on the Chinese Tech Sector.

The move from push to pull will continue to improve over time, as search algorithms learn more about individual consumption habits and trends. The challenge will then transition from uncovering signals, to eliminating filter bubbles and confirmation biases.

Creative destruction

One of the overlooked facts of investment research is that it does not have one, but many use cases. The primary function of the industry is to support better investment decision-making, but it does this in many ways – recommending trades, identifying and forecasting themes, charts and data modelling and facilitating interaction and debate.

At present, the onus falls on the consumer to unpack the report (or meeting) to extract value. But with the use of semantic technology that deconstructs and structures qualitative content, we have begun to not just unbundle research from execution, but unpack research into smaller, more usable atomic elements. Themes, views, charts, data trade ideas, events, narrative and portfolios are now extracted from the traditional report and reconstituted to be used in creative ways to support the investment process.

Maybe you are looking for themes impacting China, or high conviction views, or datasets that lead CPI. These can now be discovered independently from the report and used to support specific use cases – creating investor presentations, developing a thematic recommendation or scoring asset classes or sectors.

I like the way you work it

Two of the biggest shortcomings of research have been the lack of interactivity and availability of tools to integrate insights into the investment value chain. While part of the interactivity issue is addressed through analyst access or custom projects, it does not meet all needs (and has limited scalability). And the integration of research into workflow has been a problem largely avoided, or left to the consumer to solve.

A good example that demonstrates both issues is the Analyst who wants to use a chart from a two-month old report in a presentation – updating the timeframe and adding a dataset. To achieve this, he would most likely have to recreate the chart from scratch in a separate application.

This is one example of many – tracking/updating research views and comparing them into portfolio weights, summarising research, creating investor presentations and using content to train junior staff.

To bring research to life, innovative research providers are leveraging concepts such as design-thinking to better understand and deliver tools that help solve real problems (and create more stickiness).

This demand also explains why research aggregators in their current form are unlikely to gain significant traction -they solve a first order problem – the need to manage and access available content. Portfolio Managers are not looking to solve a document management (or really, a search) problem – they are looking to solve an investment and workflow one.

Beyonc in your back garden

As managers pay closer attention to the research they are purchasing, they are also altering their expectations of the type of research they are willing to pay for – demanding services that are closely aligned to their specific needs.

This is increasing demand for bespoke and custom projects, portfolio construction and outsourced services. Transforming many client-vendor relationships into deeper consultative partnerships and moving away from arms-length subscriptions to integral solutions.

This poses a challenge to some firms that operate on publisher exempt rules, restricting the production of bespoke ideas. But given the expected rise in demand (and potential dollar value) for The McKinsey of Investment Research, expect this problem to be solved in short order.

What can I help you with?

The real economy is currently in the midst of the third, or fourth (I lose count) post-industrial transformation. Artificial Intelligence, big data algorithms, machine learning and robotics are laying waste to broad sections of previously untouched jobs and functions, while creating new ones.

Information industries are not immune to these changes. For example, the legal industry is currently in the process of being find and replaced by algorithms for all but the most complex task. Within the investment management industry, fund flow to passive and smart beta solutions (powered by robo-advisors and algos) has driven down margins over the past few years.

Within the research paradigm, these forces are also reshaping value propositions. Big data modelling and predictive analytics are informing more trades than ever before, and it would be a fool who bets against the Research Virtual Assistant being part and parcel of the Portfolio Managers workflow in the not too distant future.

Stronger together

Research is not an island. It benefits from, and enriches a broader base of content, tools and activities that make up the investment value chain. But for far too long research has been isolated. Firstly, on a provider-by-provider basis and secondly, from other aspects of the investment process.

This is changing fast. Starting with API feeds of analytics into downstream systems and models and research aggregation platforms, research offerings are coming together and no longer dancing alone in the corner to their own music.

This process will continue – direct integration of research insights into investment risk and portfolio management systems, combined research and payment management systems and integrated research and wealth management/trading tools are all becoming part of a single ecosystem.

If you were to focus on press coverage of MiFID II, you would be forgiven for questioning who would be a Research Analyst today. But in reality, the future of research is bright. The value proposition is undergoing an exciting transformation. Better research. Better integrated. Supporting better investment decisions and better performance. The new research industry is more win-win than winner takes all.

This transformation is technology-enabled, but human led. The core skillset of the Research Analyst changing. Executives running research operations are thinking about their product as more than just content, employing dedicated product managers, spending time with users and thinking about workflow as much as they think about analysing the markets.

The new research industry is a more complex, integrated species. To solve the last mile problem, providers must be prepared to not just improve stamina and speed, but to run a different race.

Brijesh Malkan is Product & Innovation Consultant atBCA Research,

Majority of Buy- and Sell-side Leaders Lack Tech Capabilities to Drive Growth; FIS Report

Editorial Staff
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New research released by FISrevealed that only 25% of buy-side and sell-side executives surveyed believe their firms have the technology capability to support their growth ambitions.

The FIS report also found that firms with the strongest performance in key operational growth areas, such as automation, data management and innovation, are significantly more likely to have grown their assets under management over the past year.

The findings are part of the first FIS Readiness Report, The Hunt for Growth, which surveyed 1,000 C-suite and senior executives across the buy-side and sell-side of the financial services market. Other key findings of the report were:

  • Nearly half (47%) of those surveyed say the economic outlook will create growth opportunities over the next year.
  • Firms are prioritizing new client acquisition and better operating margins in the hunt for growth.
  • Half of respondents (50%) say new client acquisition is one of their top three growth objectives for the next 12 months.

The results are compelling because, despite all of the headlines around fintech disruption and the need to automate, many financial institutions acknowledge that they are still not where they ought to be when it comes to embracing technology and operations, said Martin Boyd, executive director and head of I&W Strategy at FIS. Those firms who are investing for the future by taking a lead in automation, data and emerging technology are outperforming their peers in revenue growth, pointing to a tech readiness dividend for forward looking buy-side and sell-side firms.

The FIS report includes a Growth-Readiness Tracker that scored firms against six equally weighted operational enablers of growth: automation, data management, innovation, use of emerging technologies, talent management and focus on client experience.

The report found that firms that scored at the top 20% of the Growth-Readiness Tracker are significantly outpacing their competitors in driving growth. Among these Growth-Readiness Leaders, the FIS research found:

  • 47% have grown assets under management by 5% or more in the last 12 months;
  • More than a third (37%) have implemented artificial intelligence or machine learning in their business versus just 6% of the rest of the sector;
  • More than four in 10 (41%) growth leaders are currently testing blockchain technology versus less than a fifth (19%) of other institutions.

What is clear from this research, Boyd added, is that those firms that can marry enabling technologies – such as machine learning, artificial intelligence, blockchain and mobile – with new business models are reaping dividends in terms of competitive advantage.

To read the full report, visit www.FISReadinessReport.com.

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