09.05.2018
By Rob Daly

Research Goes Free Agency

As sell-side commissions continue to compress and more buy-side firms adopt MiFID II’s research unbundling globally, more sell-side analysts are setting up shop as independent research providers.

“Banks have been cutting on the distribution and trading side for years trying to hold the research budgets relatively flat,” Mike Kronenberg, CEO of Analyst Hub, told Markets Media. “You can only cut distribution costs so far and as revenue continues to decline, the analyst is just now starting to see their quality of work life deteriorate as firms have started cutting T&E, Bloomberg and are talking down compensation.”

Kronenberg envisions the trend only accelerating as he estimated that between approximately 70 and 85 percent of equities trading is done electronically and would reach as high as 90 percent eventually.

The continued migration has put further competitive pressure on the non-global broker-dealers and their research departments as well as leading to a slide in their revenues, he added.

The pricing of research continues to fall, and no one knows when it will stabilize, but it likely will be less than broker-dealers had been charging.

“We are in only the first or second inning of what is going to be a move to paying for research with something besides your trading dollars,” said Kronenberg.

The move towards independent research has fueled an explosion in research aggregators like Analyst Hub, ResearchExchange, VisibleAlpha, and Red Deer that approach the issue in their respective ways.

Analyst Hub, which started in October 2017 and closed its first round of funding in January, offers analysts the necessary infrastructure to start their businesses and be in compliance to sell their services to the buy side, according to Kronenberg.

“We work with compliance offices on the buy side, and we see everything from getting them up in business to getting a check from an institution so that they can focus on research,” he added.

Kronenberg also noted that the research pie was large enough to support multiple independent research aggregators.

“If there are 700 accounts that have multi-million dollar wallets for research, you do not need a lot of them to create a nice subscription-based business for yourself,” he added.

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