Fixed income research: Counting the cost of research

Louise Bowman
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The unbundling of research costs in fixed income could see the market shrink to a shadow of its former self.

The market for fixed income research won a temporary reprieve from the impact of Mifid II on February 10 this year when the European Commission proposed a delay to the new regulation to take account of 'exceptional technical implementation challenges faced by regulators and market participants’. 

While the research market breathed a collective sigh of relief at the one-year postponement, the changes to research that Mifid II will bring are still a serious challenge that fund managers should be addressing urgently. However, that message is struggling to get through, judging by responses given to Euromoney in its Fixed Income Research Survey this year. 

Of the 2,105 investors surveyed, 88% had not set a research budget for 2016 and 81.4% of the sample said that they had no plans to change the number of research providers they use. If asset managers keep their heads in the sand about paying for research under the new rules, they face a difficult task to catch up with the implications of this new cost to their business. 

The EC published draft rules for full unbundling of research and trading fees under Mifid II on April 7, revealing the Delegated Acts under which fund managers should pay for research. Investment firms must set up a research payment account (RPA) funded by specific research charges billed to its clients. These must be based on a research budget, and the frequency of the research charge must be agreed between the asset manager and its clients.