Compliance with the upcoming directive

The Markets in Financial Instruments Directive (MiFID) II introduces many changes.  TIM Group is closely tracking the industry’s unfolding understanding of the directive’s impact on the unbundling of research and execution, and the impact on sales teams and research analysts.

Many of our 250 buy-side clients both in Europe and overseas have been considering how they will pay for sales coverage under the new regulation.

Trade ideas appear to provide at least part of the answer.  Trade ideas are substantive research (as defined by the ESMA, FCA and other European regulators) and therefore are the only non-execution service that can be paid for from client funds.

Trade ideas allow investment firms to gain control of their broker sales coverage and reward the best ideas, ensuring their processes are fair and, more importantly, compliant.

How TIM supports buy-sides to comply

Trade ideas are a demonstrable source of alpha.  Unlike phone calls, emails or face to face conversations, they are transparently delivered, recorded and evaluated.

By using trade ideas to evaluate broker performance, investment managers can be sure the rewards are correlated appropriately with the alpha their brokers provide.  This is the essence of what regulators are trying to achieve with unbundling, and is, we believe, an appropriate use of client funds.

Upcoming webinar

Thursday 9 November: The new role of alpha in research valuation

Unbundling could mean the best, most insightful third party research will be rewarded, and generic research disappear. There is danger of low-value research subsidised by brokerage or investment banking activity driving out good research. Fund managers should look to research to give them an edge, generating alpha. If they establish appropriate processes, they can be the drivers to ensure the best research rises to the top.

Join Colin Berthoud (founder of TIM) and Mike Carrodus (founder of Substantive Research) as they explore the danger that MiFID II will create a research wasteland – and the role of fund managers in ensuring that valuable research is effectively nourished.