16 September 2014

Fidessa Fragmentation Index

Steve Grob - Fidessa

97 | posts 295,953 | views 3 | comments

If it ain't broke, break it

12 August 2014  |  1908 views  |  0

I was hoping to enjoy the last few weeks of summer in relative peace, but it seems that another regulatory storm is brewing. This time it’s over the unbundling of research and it all stems from ESMA’s interpretation that, under MiFID II, research is an “inducement to trade” and therefore cannot be paid for out of commissions. This threatens to completely derail the economics of trading and reduce the quantity and quality of research available (and the resultant investment decisions). The current approach allows for research and other legitimate broker services to be paid for out of dealing commission and is managed and controlled via commission sharing arrangements (CSAs). Provided the right systems are in place the buy-side can evidence all of their decisions as to where commission dollars were spent and the sell-side can be adequately rewarded for providing quality research – the better the research it provides, the more commission dollars it attracts.

I wonder if a better approach, then, might be to ensure the whole CSA process is standardised and works properly, since everyone seems happy with it. Otherwise, we will face the worst possible outcome. Firms will have little incentive to invest in proper CSA management systems today if they believe that everything will eventually be fully unbundled. This will do little for industry efficiency and seems to fly squarely in the face of any regulatory objective of transparency. And, at the same time, the whole of the European investment industry will be placed at a competitive disadvantage as the unbundled 'sticker price' of their services will appear much higher than that of their competitors in the US or Asia.

TagsTrade executionRisk & regulation

Comments: (0)

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Latest posts from Steve

The Future of Best Execution

18 August 2014  |  1882 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

If it ain't broke, break it

12 August 2014  |  1908 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Build vs Buy becomes Rent vs Collaborate

12 June 2014  |  1899 views  |  0  |  Recommends 0 TagsTrade executionPost-trade & ops

Maybe markets are unfair, but are they rigged?

02 April 2014  |  1569 views  |  3  |  Recommends 0 TagsTrade execution

The Twilight Zone

05 February 2014  |  1943 views  |  1  |  Recommends 0 TagsTrade executionRisk & regulation
name

Steve Grob

job title

Director of Group Strategy

company name

Fidessa

member since

2009

location

London

Summary profile See full profile »
I am responsible for strategic development at Fidessa. This includes the development of new geogr...

Steve's expertise

What Steve reads
Steve writes about

Who is commenting on Steve's posts

Ketharaman Swaminathan
Tom Saar
Peter Fredriksson
Erik Bogaerts