Broker costs: MiFID II showing “bite”

The pressure of unbundling broker research costs due to 2018 regulatory changes in capital markets has started to be felt in lower commissions, research shows.

In Europe, asset managers paid brokers more than a whole basis point lower for their stock and bond research  in the first quarter of the year. Research costs fell to 5.2 basis points from 6.9 in the last quarter of 2017, according to broker ITG’s latest ‘Global Cost Review’.

In the UK, costs dropped from 7 basis points to 5.8 during the same period.

“A fall in execution rates was always likely, but not to this extent,” said Andre Nogueria, director of trading analytics at ITG. “Nearly six months in, a decline of nearly a third in UK commission rates proves that MiFID II is really starting to bite.”

MiFID II, the revised Markets in Financial Instruments Directive that became effective at the beginning of the year, has forced asset managers to be more transparent about how and how much their managed funds pay for securities research from third parties.

However, Nogueria said regulation was not the only factor in the fall in costs, but that “more and more assets managers using algos” to handle their orders was also a contributor.

“All this means that, for the banks and brokers, there is now increased pressure to do more volumes which puts a significant squeeze on their cost base. In the coming months, as pricing in terms of commissions becomes even more transparent, taking an order and providing the best possible execution on it will be essential.”

©2018 funds europe

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