Financial Times: Nomura signals research shake-up as Europe’s MiFID reforms bite

16 January 2018

Koji Nagai laid out the challenges posed by new MiFID II reforms and the forced unbundling of research and equity sales, saying that Nomura was “not a charity” and could not provide research free of charge.

The president of Japan’s biggest investment bank Nomura Holdings said: “We already stopped providing research services in Europe. Probably there is no advantage in providing the service in the US,” said Mr Nagai, who added that, because of the impact it would have on the way international clients would pay for research, the MiFID II had to be treated as a global issue. Nomura’s equity research operations in the US cover about 200 companies.

Nomura is the first leading bank to publicly indicate that it is considering restructuring as a consequence of the new rules. Bankers and experts have warned of significant cuts to research divisions as a consequence of the European reforms, which requires investors to explicitly pay for research instead of its cost being covered by the commissions investors pay for trades.

The rules stretch beyond Europe because many global investors are implementing them across their businesses. Big banks have adopted a “wait and see” approach. One research managing director at a leading bank told the FT that while his team could be cut back by 30 or 40 per cent, the cuts would not come until the bank better understood how investors’ behaviour would change under the new regime.

Mr Nagai said that, while there were no plans to close research services in Japan, where the operations were supported by an extensive base of domestic clients, there would be cost-cutting. “We cannot terminate the service in Japan, but at the same time research is becoming commoditised so, at a minimum, the current large research house workforce probably cannot be sustained. I don’t think we are the only one in this situation,” said Mr Nagai, adding “analysts who can use their knowledge and provide consulting-related services on top of basic research still have a value, so they can survive”.

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