Unbundling Opens New Opportunities
Global Prime Partners, the boutique prime broker, has agreed a joint venture for its clients to access RSRCHXchange, the online marketplace for institutional research, as regulators push to separate the costs of trading and research.
RSRCHXchange was launched last year to allow fund managers to pay for research either by subscription, through buying individual reports with cash, using commission sharing arrangements or the new MiFID II research payment accounts. MiFID II, the regulations covering financial markets in the European Union from 2018, unbundles research and execution fees which have historically been combined in one payment.
Sean Capstick, head of prime brokerage at GPP, told Markets Media that larger banks can offer research to hedge funds so the joint venture will allow GPP clients access to content which should help boost their returns. RSRCHX has research from more than 130 providers on one platform.
Capstick said: “We did not want to provide research ourselves and this arrangement has the beauty of allowing our clients to pay for research directly and comply with MiFID II regulations.”
He added that larger banks are cutting back on prime brokerage due to regulations such as Basel III constraining their balance sheets so providing access to research should help GPP win more clients.
Vicky Sanders, co-founder of RSRCHXchange, said in a statement: “By using our RSRCHX platform, asset managers can be confident that their access, procurement and management of research is MiFID II compliant. This partnership expands our ever-growing international client base and we look forward to working with GPP and their customers in the future.”
Amrish Ganatra, managing director at Commcise Software, which provides cloud-based commission management technology, posted a guest blog on the Integrity Research Associates website on how European asset managers can use a research payment account once MiFID II comes into effect. They can either pay for research themselves out of their own revenues; fund an RPA using commission sharing agreements under the transactional method or set up a separate research accounts for clients with agreed budgets under the accounting method.
“The requirement to obtain clear agreement with each client is greater in this approach, relative to the transactional method, because the accounting method introduces a new way of collecting the charge i.e. by withdrawing it directly from client funds,” added Ganatra. “The asset manager would then trade with every executing broker at an execution-only rate.”
Under the accounting method the asset manager calculates a daily proportionate accrual of the annual research charge agreed with its clients. The accrued charge is then physically withdrawn from each fund on a monthly or quarterly basis.
“The research charge would then be sent to one or more RPA administrators who would manage all payments for research on their behalf,” added Ganatra. “Every research provider would therefore receive a cheque for their research service, totally independently of their trading activity.”
Asset managers also have to regularly assess the quality of research they have purchased and tell clients how their research budget has been spent.
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