Research into Research

It is interesting to see the huge differences in approach from both the buy-side and sell-side to the unbundling of research and execution required by MIFID 2 which is due to go live in one month.

One of the only consistencies so far is that spending on research by the buy-side is forecast to go down as is the amount of research produced by the sell-side. Let's wait to see whether this is a global phenomenon including Asian funds with Asian investors or whether the geographical impact of MIFID 2 is restricted to those captured by MIFID 2 itself.

The distribution method has also been under close scrutiny as both sides of the fence look to extract as much value as possible from the research procurement process. Gone are the days (at least soon) of sending countless non-targeted research notes making it impossible to see the wood for the trees. Now we expect targeted led research based on data analytics to create true value for all. In a similar way that Amazon is able to suggest the next book I am going to read, the next toy I order for my child and the next present I cannot afford to buy for my wife, I would expect the distribution of research to step away from the current game of numbers and truly target the recipient based on several factors including strategy, remit etc.

The other business disrupter is the rise of the research platform. Essentially an exchange connecting sellers and buyers of research on an “a la carte” basis. Will this new digital way of providing a service without owning any inventory take off for research? We are seeing a few early start-ups and takers operating in the space which could transform the way research is distributed. We have also seen this business model take-off in other industries, namely Uber, Air B&B and Amazon.

I am curious to see how such platforms measure the quality and price such as research notes. This could also increase the number of independent research analysts.

Whatever happens as a result of MIFID 2 and other regulatory and cost pressures, it is clear that the current way of doing things is about to change. The question is really how much will it change and what is the reach of such changes?