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The future of research under Mifid II: He who pays the piper calls the tune

As the complexities of charging for fixed income research become more apparent, many asset managers are deciding to pay for it and equity research themselves, but with just four months to go, they are no closer to knowing how much this will cost.

Illustration: Paul Daviz

Many costly man-hours have been expended determining exactly how asset managers in Europe should manage the research payment accounts (RPAs) that they will soon be required to set up under the Markets in Financial Instruments Directive (Mifid) II, the EU regulation that will unbundle research costs from execution and trading. 

RPAs must be funded by specific research charges billed to asset managers’ end-client investors. The equity markets, which have traditionally paid for research as part of commission-sharing agreements (CSAs), will now have to fund the RPA using revised and stricter CSAs or set up a separate research charge to clients instead. 

In fixed income, where the costs of research and execution have always been a blended part of the price of the security, the fiendish challenge of how to manage an RPA has become a billion-dollar question. 

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