Capital Markets

Investment Research Review

In April, the FCA proposed a new investment research payment option that would enable firms, such as asset managers, that wish to buy investment research to use bundled payments for third-party research and execution services, provided that the firm meets the requirements in relation to the operation of these. This new option will exist alongside those already available for buying investment research, i.e. payment for research from a firm’s own resources and payment from a research payment account (RPA).

We responded to this proposal and in our response, we expressed support for research payment optionality, which will provide investment managers with the flexibility to choose the payment option that works best for them and their clients.

We believe this flexibility should extend to investment managers’ approach to the guardrails, and that the FCA should, within the criteria set out, allow firms to determine policies on issues such as cost allocation, benchmarking and valuations in a manner that is most appropriate to them and their clients. This includes being able to set the level at which these policies would apply at whatever level firms deem appropriate. It is important that the guardrails not be overly prescriptive, as this could preclude firms from being able to take up the new option. This flexibility will be essential for asset managers to revert to a global research programme (covering the UK, US, and Asia Pacific).

We do note that any decision as to whether to take up the proposed new payment mechanism would be dependent on the business model and approach of individual member firms and would be taken only after careful analysis and engagement with clients. Transition to a new payment model would also require time and resource to implement and transition to necessary new systems.

Further information:

Hugo Gordon
Senior Policy Adviser
hugo.gordon@theia.org

Kenix Lee
Policy Lead
kenix.lee@theia.org

Anika Schaffter
Assistant Policy Advisor
anika.schaffter@theia.org

IA website hub page can be found here.

Ultimately, we stressed that while policy makers and regulators should not necessarily expect an immediate large-scale industry switch to a new approach to research payments, we believe that providing investment managers the flexibility to implement the research payment choices that work best for them and their clients will produce the best outcome.

Consolidated Tape

Equities Tape

In April, the London Stock Exchange Group (“LSEG”) published a paper titled “A UK Consolidated Tape for Equities” which set out LSEG’s position on the development of such a tape. In it, LSEG outlines that there is no strong use case for a pre-trade equity tape and also states that lowering costs for data will also result in lower data quality.

On the direction of the IA Consolidate Tape Working Group, we decided to publish a response to clarify the buy side views on a consolidated tape for equities which we do not feel were fully and accurately reflected in the paper.

The IA and some of the Working Group members met with the LSE to outline our position and our response was also shared with the FCA.

Bond Tape

The FCA has appointed DotEcon Ltd to finalise the tender design for the bond CTP. They will be looking shortly to arrange calls to discuss market participants’ thoughts on the tender design. The FCA seeks our members' views on specific topics in the bond CTP tender design.

The IA is working with the Consolidated Tape Working Group and Fixed Income Traders Committee to feed in our views to the FCA.

Market Data

In April, we wrote to the FCA in response to the FCA’s Wholesale Data Market Study report. The IA and our members have long-held concerns regarding the rapidly increasing cost and complexity of wholesale data markets. It is a topic of significant importance to our members and the IA has been communicating our members’ views continuously to the FCA through our responses to the Wholesale Market Data Study.

Further information:

Hugo Gordon
Senior Policy Adviser
hugo.gordon@theia.org

Kenix Lee
Policy Lead
kenix.lee@theia.org

Anika Schaffter
Assistant Policy Advisor
anika.schaffter@theia.org

IA website hub page can be found here.

We appreciate that the FCA’s report appropriately identified some of the issues prevailing in the wholesale data market, in particular the concentrated market and lack of competition. However, the IA members were disappointed that the final report does not specify clear actions to tackle the issues.

Since the publication of the report and our response to it, the IA has taken up all opportunities for continued dialogue with the relevant policy and supervisory teams at the FCA and we have reiterated our offer to help, as well as our recommendations and proposed solutions.

ESMA Consultation on MiFIR Review Package

ESMA initiated a public consultation as part of the review of the Markets in Financial Instruments Regulation (MiFIR) yesterday. This consultation focuses on improving transparency and harmonisation in capital markets through three new technical standards (RTS).

The Review consultation package specifically focuses on

The pre- and Post-Trade Transparency for Non-Equity Instruments: enhancing transparency for trades in bonds, structured finance products, and emissions allowances by balancing real-time transparency with deferred publication.
The reasonable Commercial Basis (RCB): ensuring market data is accessible, fair, and non-discriminatory. This includes discussing the cost-based nature of fees and applicable reasonable margins.
Instrument Reference Data: aligning this data with other reporting frameworks and international standards for transaction reporting and transparency purposes.

The IA will feed into the consultation through the EFAMA Trade Reporting & Market Infrastructures Standing Committee.

Further information:

Hugo Gordon
Senior Policy Adviser
hugo.gordon@theia.org

Kenix Lee
Policy Lead
kenix.lee@theia.org

Anika Schaffter
Assistant Policy Advisor
anika.schaffter@theia.org

IA website hub page can be found here.