BlueMatrix Addresses Implications of MiFID II and Broker Vote

The BlueMatrix 2016 New York Research Roundtable at the Crosby Street Hotel featured a discussion on the practical implications of pending regulatory changes within the research industry.

The January 2018 implementation date of MiFID II leaves firms with just over a year to prepare their supervisory technology required for compliance. Simon Edwards, Head of Business Development BlueMatrix, moderated a dialogue on the state of industry preparedness for MiFID II.

BlueMatrix thanks our panelists for their expertise:

• John Colon, Managing Director, Greenwich Associates
• Paul Booth, Managing Director, America's Director of Research, Data & Analytics, BlackRock Active Equities
• Tom Conigliaro, Managing Director, Markit Brokerage and Research Services
• Michael Mayhew, Chairman, Founder and Global Director of Research, Integrity Research
• Steven Moreno, Global Research Relationship Manager, Capital Group

The panelists considered the possibility of a last-minute scramble by the sell-side to implement a pricing structure.

"I'm a bit surprised by the lack of meaningful specifics that's been discussed at this stage," related Paul Booth, Managing Director, Americas Director of Research, Data & Analytics for BlackRock Active Equities; "time is ticking."

How can the sell-side systematically value their research, and what is the best way for the buy-side to effectively budget?

John Colon, Managing Director, Greenwich Associates, gave some color to the mechanics of the issue. "People are getting down to the level of tracking the length of phone calls as a proxy for value. It took 30 seconds. Probably of low value. It took 15 minutes? Well, they probably weren't just talking about the game last night."

Michael Mayhew, Chairman, Founder and Global Director of Research at Integrity Research considered how Independent Research providers are setting the benchmark for pricing. "In fact, most sell-side firms don't have prices. What you're tending to see is a very, very un-level playing field where asset managers will tend to pay independent research firms out of P&L, in cash, and they will tend to pay firms that don't have a price with bundled commissions or with CSAs."

Common supervisory approaches and best practices continue to evolve in preparation for the January 3rd 2018 implementation date of MiFID II. "The challenge for the sell-side is that, in effect, when the buy-side is ultimately establishing a budget, cascading that budget to underlying clients, creating that level of transparency," conveys Tom Conigliaro, Managing Director, Markit Brokerage and Research Services.

Will the research budget ultimately set the Broker Vote, or the Broker Vote, the budget?

Steven Moreno, Global Research Relationship Manager at Capital Group, considered the behavioral changes of offering dollars versus points. "Whether we're paying out of a hard dollar or a soft dollar, you should value the research just the same, whether it's Capital P&L or a client's P&L. They are exactly the same thing. Therefore, you need to think about the value you're deriving, and who is impacting your investment process."

BlueMatrix looks forward to continuing the discussion on this critical topic on November 18^th at the BlueMatrix London Research Roundtable.