Visible Alpha MiFID II

The Financial Conduct Authority (FCA) recently surprised the investment community with the announcement that it would begin conducting audits of brokers and fund managers to ensure proper compliance with the European Union’s revised Markets in Financial Instruments Directive (MiFID II).

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In September 2019, the FCA released a review of the post-MiFID II landscape that detailed how firms implemented the new rules for research unbundling over the last 20 months. The findings show that broker lists for executing brokers have grown, but broker lists for research has remained relatively the same. In theory, this indicates that most firms are still getting the research they need despite smaller equity research budgets and the rise of passive investing. However, this isn’t necessarily a good thing – on the surface, it appears MiFID II regulations aren’t disrupting investment workflows, but in the data sourcing world, maintaining the status quo means you’re behind.

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As part of the MiFID II, buy-side firms impacted by the regulations are required to create and implement a research valuation framework to track, value and pay for consumed research. This has resulted in an increased focus on the quality of content consumed, including research reports, analyst models and corporate access events. While investment managers continue to rely on comprehensive usage and consumption data from providers as part of their valuation framework, it’s no longer simply about the quantity of research consumed. They are looking for new ways of consuming and evaluating the research they receive to bring a greater focus on the quality of that content.

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In recent conversations with clients, there is a growing interest in real-time tracking of research delivered from the sell side, as monitoring inducement risk is prioritized under MiFID II. Clients have highlighted that the majority of research consumption occurs through the email inbox, an exceedingly difficult channel to monitor. How do you monitor your investment team’s inboxes? Are you able to answer basic questions, such as:

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