MiFID2: Beyond Research Unbundling

MiFiD2 will have global impacts

With MifiD2 fast approaching and low likelihood that the regulatory changes will be postponed, the impacts on global market participants continue to loom large. Rarely does a week go by that the various issues and changes from MifiD2 are not mentioned in financial industry news. The topic that gains the most attention is of course research unbundling. This will have broad reaching impacts to both the buy-side and sell-side as well as research firms in all their forms (from in-house to independent research providers).

MiFiD2 creates a sea change for financial research

The most often discussed result of MiFiD2 is the unbundling of payment for research from transactional fees. This of course is a relevant an important topic; however, after the regulations are in effect the real importance will be in the evolution of financial research. There are three items to keep in mind during this transition and in the world after MiFiD2 is fully implemented:

  1. Value based assessments of research data will become crucial as the costs will be direct and known. This will encourage all consumers to clearly evaluate the value of the research throughout the entire investment life cycle including clear assessment of alpha derived from research.
  2. The impacts of MiFiD2 will be global. As discussed in a recent FinAlternatives article “MiFID2 For U.S. Firms: Key Questions Answered” non-European managers and funds will need fully understand and embrace the impacts due to the often complex multi-national advisory structures utilized globally.
  3. Research data will derive from new sources and traditional sources will be further enriched. As Richard Bentley states in “Ullink bolsters MiFID 2 transaction reporting with automated post-trade data management” MiFiD2 will increase the “need to collect, normalise and enrich an extended data set across a variety of front-office systems”.

These key points are core to the evolution of market research that will follow these new regulations. Traditional research providers, independent research and alternate market data providers world-wide will be able to capitalize on these regulatory changes and provide great value to their global clients as long as they remain focused on participating in these changes, adapting their research creation processes and insuring that they are leveraging cutting edge technologies such as AI, ML, NLP and sentiment analysis.