In recent weeks, the understanding of how to implement the rules for commission payments set in Europe’s MiFID II regulation has changed, according to David Pearson, head of post-trade strategy at trading platform provider Fidessa.
“The understanding now is that a broker must be paid for services they provide to clients, whatever those services are,” Pearson said. “That also includes research. The buy-side is obligated to make sure it has a process and understands what research it needs — and the value of that research.
“[The regulation] completely changes the landscape of how existing brokers offer their research at a bundled rate, and [buy-side firms] get everything the firm actually issues,” he added. “The process of how research is procured is going to fundamentally change as a result of understanding the inducement which goes hand in hand with this particular space.”
Fidessa has partnered with commission management software provider Commcise to offer the capability to manage payment of fees for research in the manner required under MiFID II once it takes effect in January 2018.
Together, Fidessa and Commcise have taken an algorithmic approach to handling research fee payments, as Amrish Ganatra, managing director and co-founder of Commcise, explained.
“On a trade-by-trade basis, the allocations or accounts that feature part of the trade help determine exactly how much research commission to add on a given trade,” he said. “We make that decision based on looking at the budget for every given allocation within that trade. … We give the buy side the tools to determine what this extra research charge is on a trade-by-trade basis.”