Outlook 2017: Jon Foster, Smartkarma12.29.2016 By Rob Daly Editor-at-Large
Jon Foster is co-founder of research provider Smartkarma.
How will 2017 be known as?
The coming year will be a seminal year for the research industry, with ramifications that will reverberate throughout the structure of investment banks, brokers, and asset managers.
MiFiD II officially goes live on January 3, 2018. From that point, research needs to be unbundled from trading commissions and priced separately. This means 2017 will be the year when the sell side and independent research providers need to present their solutions and asset managers need to make their decisions.
On the sell side, we have seen some substantial announcements as banks explore new business models with vendors. For example, Société Générale will now provide Asian research via an online, curated platform from fintech startup Smartkarma. Other market options include subscription plans, a la carte purchasing solutions, or auctioning of analysts time to name but a few. Further sell side moves have been to exit the research space altogether, or to shift focus from a large number of the banks’ client base to provide bespoke services for top tier clients only.
For asset managers, there are ever more complex tools to evaluate research and set budgets, and key decisions to be made on how to package the payment and who, at least on face value, pays for it.
What we as an industry choose next year will not be the end of it by any means. This will be the start of a multi-year cycle of innovation and iteration that will change the way all financial market participants structure and operate.
Research has traditionally been inter-related (bundled) with many other parts of the industry including corporate access, market making, flow trading, execution and capital markets. Breaking the cross-subsidisation will ultimately change how all of these business functions operate too.
Although change can present short-term difficulties, there can be very few industries with people more capable of reacting positively to that change. This presents tremendous opportunities for us all. The opportunity to rethink and reshape the industry for the better, to question entrenched habits and legacy systems, embrace innovation and in so doing create a better more efficient and effective industry.
We will look back at 2017 as the year when it all began.
A select group of bulge-bracket brokers have gained market share.
They will co-operate on fixed income, currencies and commodities academic research.
Covid, ESG and a growing focus on data has significantly churned market share.
Machine learning promotes significant efficiencies in portfolio management.
Institutions are prioritizing dark liquidity in their selection of algo providers.