We believe that the SEC`s decision will create the conditions for increased use of client commissions and, in particular, CSAs for research funding in the future. This will result in support for several key objectives for the health of the investment ecosystem: greater flexibility and transparency in research and evaluation processes; a level playing field for large and small investment managers; Improve managers` performance on behalf of clients by providing access to solid research and a capital formation process that favours small and medium-sized enterprises, which are the lifeblood of the U.S. economy. Bloomberg Tradebook recently surveyed more than 100 European customers to assess market mood on some of these topics. Of those surveyed whose companies pay for research, 45% currently pay with bundled commissions, which is unlikely to be possible after the implementation of MiFID II. It will be interesting to see how these companies adapt; they could introduce CSAs or RPAs, pay directly on their own resources or perhaps stop paying for research together. 37% pay for research mainly with the CSA and have therefore already made progress towards dissociation – one step closer to what regulators are looking for. Not surprisingly, the U.S. Securities and Exchange Commission (SEC) has extended its information to the Securities Industry and Financial Markets Association (SIFMA) for a period of three years until July 3, 2023, while the SEC continues to examine the impact of the European Commission`s Delegated Directive on Financial Instrument Markets (MIF II).
It is important that the SEC`s decision strengthens the enforcement of commission-sharing agreements (CSAs). MiFID II could lead to increased competition in the research sector as competition in the investment research market is likely to increase under MiFID II, asset managers will become more selective, with new flexibility in research spending. Most of the new active returns could not come from the investment bank due to lower research budgets.