A simplified guide to MiFID II unbundling
With the delegated acts released, RSRCHXchange has written a simple guide to the DAs and what is required of buy side firms in the unbundled world. The key requirements are for firms to
- establish a written policy for research and provide it to clients
- set & regularly assess budgets
- inform clients of the budget upfront and provide information annually on total costs
- regularly assess the quality of research purchased
- be able to provide summaries over a defined period to regulators or clients upon request
- put in place appropriate controls and management oversights
- establish clear audit trails
- pay without any undue delay
A new European definition of research has also been provided (paragraph 28) which is inclusive yet detailed. Ultimately, content which is research, not just information, must inform an investment strategy. Research can make implicit or explicit recommendations but must be relevant and value-add. It can cover specific financial instruments or related industries and markets.
CSAs are not specifically mentioned, but Article 13 (3) allows operational arrangements whereby the research charge can be collected alongside a transaction commission so long as it is “separately identifiable.”
Sell side firms will be required to unbundle so that there is a cost of execution and a separately identifiable charge “each other benefit or service.”
Member states have until July 3rd, 2016 to adopt and put into place the necessary laws and regulations to comply with the directive.