Many banks and asset managers had to grapple with onerous reporting requirements to capture more information about the pricing and volume of their trades. These required costly technology and IT updates ahead of the deadline but while systems creaked, most escaped unscathed. Nevertheless, experts warn that the story does not end here. Companies must manage ongoing risks associated with the new rules, as regulators — which to date have allowed a grace period in certain areas around the changes — begin to circle.
One part of the directive that will take time to bed in requires fund managers to pay financial institutions directly for analyst research, instead of the opaque practice of combining the cost with trading commissions. The rules, which have forced asset managers to reassess what they consume, promise to shake up the dynamic between buyside fund managers and sellside banks and brokerages, but many experts predict demand for research will fall as a result of the legislation and that analyst numbers will be slashed.
One question is, how do you assess the value of research content, which has never been priced before? For banks, this judgment requires weighing up what they think their product is worth against broader market rates, which have come down considerably from what was first mooted a year ago.
The second big question is around what constitutes research. Some point to confusion as to whether information that is less structured than a written research report — ad hoc phone calls, messenger chats or even work conversations in the pub with a contact — fall inside or outside the scope of the rules.
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