Smartkarma and RSRCHXchange, two of the most popular platforms, report a noticeable uptick in interest since MiFID II came into effect. Such independent analysts have also benefited from the recent blossoming of tech-driven, exchange like research marketplaces that connect research producers and consumers. Going independent allows clients to just pay for analysts they like and provides space to be more creative in the way analysts generate and present insights. Also, for analysts, going independent is now a far more viable path than it was in the pre-MiFID II era. Sell-side research teams will be cut or decommissioned altogether coverage in equities will concentrate on the most liquid, popular stocks and analysts will be forced to become more original. Research is considerably more difficult to price in a consistent way and the idea that the economics of financial content will be worked out quickly seems like so much sell-side wishful thinking. While some analysts have drawn analogy of expected revenue phase with music industry, their structure is very different. They’ll then gradually raise prices once the field has been cleared. The response from the sell-side has been both swift and predictable: a good old-fashioned price war wherein "The big banks bet that they'll gain market share and squeeze out smaller competitors. Most buy-side firms have announced they will absorb the cost of sell-side research themselves rather than pass it on to their customers. Also, analysts don't just cover the same things they often say the same things. Duplication of coverage across investment houses is rampant too. User experience is limited in the PDF technology used by the analysts for their reports. Buy-side firms have no incentive to pay attention when they're receiving information for free, but analysts do little to help their own cause. Only 2-5% of research emails are opened by clients, according to industry insiders. And third, amid the inefficiency - of both pricing and coverage - pockets of opportunity will open up for investors in a way that did not exist under the old regime. Second, when the effects of MiFID II are felt, the buy-side's annual spend on research will likely be much smaller than that, although the market for research will remain inefficiently priced for months, perhaps years, to come. First, independent analysts put the size of the global investment research industry, once it is broken out, at anywhere from $16 billion to $20 billion per year. With this backdrop three things seem certain. And into the confusion has rushed an opportunistic new host of independent analysts and tech-savvy content aggregators, buoyed by the belief that finance is about to undergo a disruption every bit as meaningful and industry-redefining as those seen in recent decades in music, media, and television. Buy-side firms, long drowning in a never-ending stream of research notes are facing the question of how much outside information (and what kind) they really need to generate market-beating returns. ![]() Sell-side institutions are now trying to figure out the right price and asset class coverage. The aim is to institute a system in which the buy-side places trades with brokers on the basis of best execution, rather than in exchange for freebies and inducements like research and corporate access. A new European Union law - the Markets in Financial Instruments Directive, or MiFID II, required sell-side institutions to explicitly charge for research instead of bundling it into brokerage costs. On January 3, the world of investment research entered a new era. Here are the ten most interesting pieces that we read this week, ended May 4, 2018.ġ) MiFID II is live and its already changing the research business Some of the most interesting topics covered in this week’s iteration are related to ‘Mifid enables new business models’, ‘The curse of Big Sugar’, and ‘Complacency over Chinese tech’. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product. Image: ShutterstockAt Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, including investment analysis, psychology, science, technology, philosophy, etc.
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