The majority of money managers with business across the globe plan to unbundle research costs globally for fixed income, currency and commodities, and execution fees, shows a survey by the International Capital Market Association.
The survey, conducted in the last two weeks of October among members of ICMA's Asset Management and Investors Council, questioned participants on their intentions regarding the unbundling of FICC research as a result of new rules under the Markets in Financial Instruments Directive II. The rules, which are effective Jan. 3, require all financial firms with business in the European Union or with clients in the EU to disclose research costs as a distinct line item.
The survey of money managers, private banks, pension funds and other investors representing a total $9 trillion found 61% of firms plan to unbundle their research costs globally, while 31% plan to pay for research in non-EU jurisdictions only for EU clients. The remaining 8% plan to segregate the EU and non-EU businesses. A commentary accompanying the survey results said these intentions show the "growing international effect these European rules will have."
Some 67% of firms said they will pay for FICC research themselves, using their profit and loss statement. Eight percent do not intend to pay for external research, 4% intend to use research payment accounts and 17% are still undecided. The remaining 4% of respondents intend to use a combination of payments.
Regarding the amount spent on FICC research, 58% of respondents expect this to increase, 21% expect FICC research expenses to decrease, and 21% expect it to stay the same.
When it comes to the number of research providers respondents expect to use once the rules come into effect, 83% said they will use a smaller number. However, in-house FICC research capacity is not set to change for the majority of respondents, with 68% saying they do not intend to or have not increased their in-house capacity because of the new rules. The remainder have increased their in-house capacity.
A majority of respondents, 54%, think the quality of FICC research will not change following the implementation of MiFID II, but 32% think it will get worse. The remainder believe it will improve.
When it comes to strategy performance, the majority of respondents are confident that the reduction in the number of FICC research providers will not have a negative impact on their strategies' performance, with 86% saying they are not concerned about this scenario.