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Congrats, we've all made it to the midpoint of MiFID II year
2.
We have an idea of what Europe is doing, but what about the US
& Asia?
In Europe, asset owners either pay for research from their own
P&L, or pay only in amounts that are disclosed and budgeted in
advance.
In the US and Asia, by contrast, most asset owners pay for
research, but don't know what they are paying or even if the
research they are buying is to their benefit.
On May 21st as a member of the Healthy Markets
Association, I met with SEC Chairman Clayton, Commissioners
Roisman and Jackson, Director Redfearn, and House Financial
Services Capital Markets Subcommittee Chairwoman Maloney (D-NY)
staff and Senate Banking Committee Chairman Crapo (R-ID) staff.
When meeting with the SEC, a smaller US-based global firm that
is paying for its own P&L, addressed the significant
administrative burden that going to P&L has caused them.
Market feedback has proven that this could be stated for firms
of any AUM size.
We advised that an ability for advisors to pay for research via
hard or soft dollars (CSAs) would be a benefit, as opposed to the
P&L approach taken by many post MiFID II. Facilitating greater
payment flexibility allows for more ease of unbundling, which
allows for advisors to truly seek "best-ex" as well.
It is clear that the SEC is laser focused on MiFID II and is
receptive to the arguments for research unbundling and that asset
owners should have an ability to know how much they are paying for
research (or not having to pay).
However, the SEC appeared concerned by the impact MiFID II is
having in regard to small and mid-size service providers overseas,
resulting in recent consolidation. Additionally, they had given the
impression that they were most focused on retaining a competitive
and balanced market for all participants, large and small.
So what should US and APAC asset managers do now to get
ready?
US and APAC asset managers should perform a comprehensive review
of their research evaluation process, reassess what they are being
charged for, and ensure that every consumer of said research weighs
in on its true value. Regulation or not, this has proven to be a
great benefit to both buy and sell side participants.
Additionally, we have received product inquiries from solely US
or APAC based non-MiFID regulated firms, who were approached by
prospective European investors who requested greater transparency
into the fund's research spend.
I've met recently with firms in Singapore, Hong Kong, and
Australia who expressed significant interest in formalizing their
research evaluation process for the first time. Many of these firms
are utilizing CSAs as well to unbundle, some for the first
time.
As the SEC continues work on its MiFID II and research
unbundling approach this year, it appears that greater transparency
into research spend is a matter of "when" - not "if" - for all
investors around the globe. This should be driven primarily by the
market forces of the global investor class, but regulation may not
be too far away.
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