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MiFID II has shrunk fixed income research market, research indicates

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Just over 40% of investors have noticed a decrease in the availability and breadth of fixed income, currencies and commodities (FICC) research for small and medium-sized companies in the wake of MiFID II, according to a survey by the International Capital Market Association (ICMA).

This trend was likely to continue as the reforms bedded down, said ICMA’s Asset Management and Investors Council (AMIC), which carried out the survey for the second consecutive year.

More than two thirds (68%) of respondents said they used less research in general compared to last year. Banks and brokers took the biggest hit, with 71% of those surveyed saying they used less research from these providers. In addition, 82% said they used fewer research providers.

However, the survey suggested that investor fears about a decline in the quality of FICC research were so far largely unfounded.

The vast majority of respondents to the 2018 survey said they had not noticed any change in the quality of the research they received, compared with 32% who last year indicated they anticipated research to get worse.

All of the respondents found no change in the quality of research from independent providers. Views on the quality of FICC research from banks and brokers were more mixed, although a clear majority (86%) said the quality had stayed the same; 11% said it got worse while 4% noticed an improvement.

Presenting the survey results in London last week, Patrik Karlsson, director of market practice and regulatory policy at AMIC, said the views about the quality of research were a positive surprise.

Karlsson also highlighted respondents’ approach to dealing with conflicting rules on FICC research globally. This year AMIC found that buy-side firms were split between unbundling research globally and only using paid-for research (35%), and segregating EU and non-EU businesses (35%). Last year 64% of respondents were planning to unbundle globally and only 7% were planning to segregate businesses.

“The significant change in firm attitude to the business segregation model may reflect that the costs and complexities of segregating their businesses geographically outweigh the costs and complexities that come from unbundling globally,” said AMIC.

AMIC surveyed 28 companies, primarily asset managers and investment funds, from EU countries.

 

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