OPINION: The Sell Side’s Loss Could Be the Exchanges’ Gain


Alternative trading system operator Liquidnet has purchased independent research aggregator RSRCHXchange in a bid to become “one-stop shop” for research, analysis, and execution for institutional investors.

In a sense, the move makes Liquidnet almost a full-service brokerage, save for the use of its balance sheet to complete client transactions.

How tightly Liquidnet will be able to incorporate the new acquisition into its portfolio of offerings remains to be seen.

Due to MiFID II requirements that went into effect in 2018, Liquidnet will not be able to bundle its research offering with its execution services like it can with its analytics and execution tools, at least for the EU market. It is only a matter of time before the same thing occurs in the US as regulators look to adopt similar regulations in a piecemeal fashion.

The one advantage that Liquidnet has over other broker-dealers is that it won’t have to go through the research-pricing exercise that other sell-side firm with original research went through in the past couple of years. RSRCHXchange already figured it out when it launched in 2015.

It might be the success of Liquidnet’s branding that has many people think of it as a liquidity venue first and an agency brokerage second, but shouldn’t exchange operators start moving into the research aggregation business as well?

Exchanges already have dipped their toes into aggregating alternative data content like Nasdaq Analytics Hub, which the exchange operator launched in 2017.

How difficult would it be to offer independent research as well?

Exchanges could encounter additional grief from their sell-side clients for disintermediating them from their buy-side customers, but the would that add any further ire given the sell side’s existing anger regarding market data and access fees?

It’s doubtful. Sell-side research always has been a value add bundled with execution services to cover a multitude of billing sins between brokers and their institutional clients.

Theoretically, the brokers already are competing with the independent analysis firms authoring research. Exchanges only would be providing the firms with an additional distribution channel.

The easiest way to see if this idea has traction is to keep an eye on the remaining independent research aggregators like SmartKarma and see if an exchange snaps it up.

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