OPINION: Research Pricing will Drop Further
With MiFID II’s requirement to unbundle research set to go into effect in less than six months, the sell side and buy side have not yet agreed upon research pricing.
Will they reach a consensus by January 3, 2018? Most likely, but not to the satisfaction of the sell side.
The rest of the year is going to involve a lot of soul-searching over how truly valuable asset managers find sell-side research.
Given that enterprise content-management provider Street Contxt estimates that 78% of all research emails to institutional clients go unopen, it is doubtful that the industry will see a seller’s market.
One thing is for sure: Wall Street will see a reduction in middling and poor research that broker-dealers have used to offset commission rates.
Smaller asset managers like UK-based Hermes Investment Management expect to winnow down its list of research providers, which reportedly consists of 60 firms.
Vanguard, which announced that it would pay for research directly from its revenue earlier this month, expects the move to cost the global asset manager $100 million annually.
Other money managers like M&G, Jupiter, J.P. Morgan, and T. Rowe Price have announced similar plans within weeks of Vanguard’s announcement.
Be sure that the asset managers will negotiate the best pricing deal they can since it will come from their own pockets.
Negotiations between the buy and sell sides have appeared to move research pricing one decimal point to the left. Initial press reports had research providers valuing their research at $1 million or more.
However, several of the marquee broker dealers have circulated tiered pricing models where they propose to charge between $80,000 and $142,000 annually for their diamond-encrusted triple-platinum offerings research offerings. For those who want access to written reports and are willing to forego conferences and face time with analysts, broker-dealer are floating prices ranging from $10,000 to $70,000 depending on the number of users.
Of course, research boutiques are a different matter. Autonomous Research, which specializes in covering financial firms, is offering clients a “pay as you go” offering that starts at $1,000 for a single company report to $5,000 for high-end research, Bloomberg reports.
Closer the industry gets to MiFID II’s deadline; likely research prices will compress further as providers will want to have contracts in place before the deadline.
There are three key areas where action is required.
Some material changes have come out of ESMA’s review of algorithmic trading.
A consolidated tape will significantly improve transparency and create a level playing field.
AFME said there should be mandatory free data contribution to the consolidated tape.
The review is an opportunity to recalibrate MiFID II regulations post-Brexit.