LONDON, Aug 18 (Reuters) - Global brokerage firm Instinet is launching a new payment management service for equity research that is unbundled from trading commissions paid by clients, ahead of planned rules to make trading payments more transparent.
The move by the Nomura-owned firm comes as the financial industry seeks to comply with proposed new regulatory curbs expected in 2017 to make trading less vulnerable to conflicts of interest amid an increasingly complex post-crisis market structure.
Payments for research have traditionally been charged to the end client via an all-in commission paid on every trade. But European regulators have proposed rules demanding payments be made separately - or unbundled - from trading, in order to fight possible conflicts of interest or over-charging of clients.
The UK Financial Conduct Authority (FCA) has also separately introduced curbs on charging clients for research that does not deliver “substantive” value.
The EU rules have yet to be finalised but Instinet said it had received approval from the FCA to become a payment institution, allowing it to receive and manage research budgets paid in cash rather than just via commissions built up through trading activity.
“Going forward, clients will be able to have a pot of hard money for research in a bank account rather than accrued from trading,” Adam Toms, Instinet’s European head, told Reuters. “It’s a clear and more transparent mechanism for underlying clients to see the charge.”
Advocates of new rules say such changes will lead to a healthier and more transparent financial market, though for some in the industry they mean another hit to trading profits in an already highly competitive market.
While Instinet does not run its own research business, it is trying to diversify its revenue streams beyond trading.
Global investment banks that offer trading and research services are also preparing for new regulations. UBS has tested new pricing models for its research while banks are experimenting with subscription models including offering unlimited access to research for a flat fee.
New independent software platforms such as ERIC, Alphametry and Airex are also offering ways for research providers to sell content separately from the execution of trades.
It may be difficult to finalise such plans, however, with the exact form of new regulation still unknown.
“It’s still too hard to predict,” said Toms. “But regardless of the end-point ... It’s really kicked off a material debate among the client community of how they should be paying for research.” (Reporting by Lionel Laurent; editing by Clelia Oziel)