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06 May 2015

Shaking the structure of financial markets: Unbundling research costs and execution (Part 3)

Talk of Capital Market Union (CMU) is all the rage amongst EU policy-makers at present (if you exclude rage about Greece…) but it is easy to forget that a key building block is already planned to come into force on 3 January 2017.

That is the date when MiFID II /MiFIR become operational – with revolutionary implications for the relationship between investors and traders/issuers of the securities they own.

The integrated investment banks presently offer a set of services in a bundle where the costs are covered by commissions for executing securities transactions. So the costs that investors pay (via their intermediary financial institution) depend first and foremost on the turnover, and then on the price, of the securities traded. So a `bull market’ generates huge transaction fees – irrespective of the value added by the bundle of services. The EU’s regulators seem determined to end a system that costs savers a significant part of the return on their money – and if they are successful, the chances are that the approach will be copied globally.

Many questions remain to be answered but the unbundling of research costs – and the expected substantial decline in research revenues – is likely to be another nail in the coffin of the `integrated investment bank’ business model. Careful thought must be given to how the expected wave of securities issuance from CMU will actually be organised in a way that genuinely benefits citizen-savers.



Graham Bishop is an independent researcher

and a member  of Euro Independent Research Providers (EuroIRP)


The full analysis article and conclusions are available to consultancy clients.


© Graham Bishop

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