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MONEY MANAGEMENT

Money managers plan cuts to research budget in advance of MiFID II rules — survey

U.S. money managers surveyed by Greenwich Associates expect to cut a combined $200 million from their research budgets in the next 12 months as a result of the European Union’s MiFID II regulations effective in January 2018.

In Europe, more than €100 million ($106 million) is expected to be slashed from research budgets because of Markets in Financial Instruments Directive II rules that will require research costs to be unbundled from trading execution costs, Greenwich said in the report,

Still, managers won’t be shifting the way they pay for research immediately, Greenwich said. Among U.S. managers, 71% said they would not pay for research with hard dollars from their profit and loss budgets within a year, while only 6% said it was highly likely that they would. Among European managers, 44% won’t pay with hard dollars within a year but 7% were highly likely to pay with them.

William Llamas, associate director at Greenwich, said in the report that while U.S. managers are not under MiFID II rules unless they have operations in the European Union, most managers will adhere to the rules because the cost of operating separate infrastructures for EU and non-EU clients would be an undue cost and administrative burden.

Overall, 40% of institutions in the study overall and 50% of European institutions said MiFID II will result in a decrease in research budgets. Money managers currently spend a total of $5.9 billion in the U.S. and €1.58 billion in Europe for research.

Fifty-seven U.S. money managers and 42 European managers were surveyed in October and November.