“Aggressive lowball pricing” from investment banks is beginning to squeeze boutique research providers’ business models following the introduction of new EU markets rules.
Under Europe’s sprawling Mifid II legislation, which came into force in January, banks and brokers must charge asset managers specifically for investment research. The change was designed to curb inducements — many banks and brokers historically provided research for free as a way to lure fund managers to trade with them. The move has prompted big investment banks to slash the prices they charge for analyst research in a bid to guard market share — in most cases to under $10,000 a year all-in, down from the six- or seven-figure sums first mooted around two years ago, although the market remains opaque. The cut-throat price war, together with moves by asset managers to cull the number of research providers they use, has taken its toll on smaller independent providers who rely largely on research revenues to survive, data from Euro IRP showed.
Against this ultra-competitive backdrop, the trade body urged regulators to take “urgent action” on research pricing, arguing that boutique houses do not offer trading services and therefore “present zero risk of inducement”. Euro IRP also said that independent providers need to be offered greater flexibility to market their research to new clients. “Euro IRP and our member firms individually are …truly concerned that parts of Mifid II, most notably research pricing, are not functioning as they should,” said Chris Deavin, Euro IRP’s chairman.
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