About a-team Marketing Services

A-Team Insight Blogs

Regulatory Environment for Investment Research Facing Uncertainty, Substantive Study Says

Subscribe to our newsletter

Investment research provision in the US, Europe and the UK is facing more uncertainty as the market awaits significant changes to the regulatory landscape, according to a study of the current state of broker research pricing, supply and market share by Substantive Research.

According to Substantive, MiFID II’s implementation in 2018 increased the focus on the value and cost of research, and a steady decline in research pricing has followed since then, alongside brokers downsizing their analyst teams on both sides of the Atlantic. However, certain brokers have now bucked this trend and attracted stronger revenues and greater market share, rising significantly higher in Substantive Research’s top 20 broker league table by share of research payments.

The study showed US broker Jefferies moving up to third spot from seventh at the expense of UBS, with JP Morgan and Morgan Stanley retaining the No 1 and No 2 positions in the rankings. This, according to Substantive, “is a direct result of investing in hiring and retaining skilled research analysts at a time when the market in general saw a post-MiFID II price deflation and a move towards juniorisation of research.

“Although Jefferies’s analyst teams have shrunk somewhat post MiFID II, in proportionate terms, the net experience lost between 2019 – H1 2022 was 70% lower than the top ten providers, and 80% lower than their peers in the top five. What’s more, where Jefferies did lose experienced analysts, they replaced them with targeted, highly ranked analysts in order to maintain the quality of the research product.”

Substantive notes that change is imminent in the major jurisdictions setting policy around investment research. In the European arena, Substantive expects MiFID II’s research unbundling reforms to be softened, although it’s unclear to what extent or what impact that may have. In the EU, the imminent Listing Act is likely to include flexibility to rebundle research and execution under certain conditions. And the UK’s Investment Research Review will be completed in June 2023 and there has been reference to potential rebundling when it was launched this March.

In the US, meanwhile, the SEC’s no action relief that has been in place since 2018, which allowed cash research payments from Europe to the US to accommodate for MiFID II, will be allowed to expire and this has thrown the market into chaos, according to Substantive. US brokers do not know how they will be able to accept payments from European clients after July 3rd, 2023.

Previous Substantive Research data indicates that brokers are taking different approaches to these challenges. Some will allow their clients to pay through their European offices for research consumed globally, others are registering as Investment Advisors (or deciding to create the infrastructure for their existing RIA to charge for research) in order to continue to take cash payments for research.  But with time running out before the lapsing of the SEC’s ‘no-action’ letter, a Substantive Research study showed in February 2023 that the market still had not identified a consensus way forward for research providers.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Potential and pitfalls of large language models and generative AI apps

Large language models (LLMs) and Generative AI applications are a hot topic in financial services, with vendors offering solutions, financial institutions adopting the technologies, and sceptics questioning their outcomes. That said, they are here to stay, and it may be that early adopters of Generative AI apps could gain not only operational benefits, but also...

BLOG

FCA Criticism of Funds’ SDR Approach Stirs Controversy

The UK regulator has criticised fund managers for failing to abide by interim guidance on ESG disclosures just days before it’s expected to announce details of a formal regulation. But the comments have been met with frustration and caution within the ESG data and technology community, with one practitioner arguing that the Financial Conduct Authority...

EVENT

RegTech Summit New York

Now in its 8th year, the RegTech Summit in New York will bring together the regtech ecosystem to explore how the North American capital markets financial industry can leverage technology to drive innovation, cut costs and support regulatory change.

GUIDE

Regulatory Data Handbook 2023 – Eleventh Edition

Welcome to the eleventh edition of A-Team Group’s Regulatory Data Handbook, a popular publication that covers new regulations in capital markets, tracks regulatory change, and provides advice on the data, data management and implementation requirements of more than 30 regulations across UK, European, US and Asia-Pacific capital markets. This edition of the handbook includes new...