In the last weeks before MiFID II goes live, the investment research industry is still adjusting to comply with the new rules designed to improve transparency and protect the investor. The new legislation covers a wide range of topics impacting the European financial system as of January 2018. One of the major constraints MiFID II introduces is a “no inducement” rule. It will require brokers to separate their execution and research offers, and investment firms will not be allowed to receive any research for free any more.
Buy-side firms used to receive their investment research from their brokers bundled with trade execution or other services. This practice is now deemed an inducement by the regulator: money managers may deal transactions with brokers giving the best advice and access, rather than the lowest commission for executing trades. By unbundling the research costs, MiFID II aims to provide the end clients with more transparency on what they pay for. But this overhaul comes with a series of challenges for both sell-side and buy-side firms.