READ NOW: Singletrack Quarterly Benchmark Report Q2 2024

Thoughts from Unbundling Uncovered: summer 2023


Earlier this month, Singletrack joined representatives from global capital markets firms in New York for Unbundling Uncovered, the biannual investment research event hosted by Substantive Research. With the expiry of the SEC’s MiFID II no-action letter just weeks away, discussion was varied and animated. Here’s our summary of the key topics.

  • The no-action letter won’t be extended, brokers are responsible for compliance
  • There’s no consensus on how global firms will handle payments
  • Europe is heading back towards bundled payments
  • Research budgets are tighter, but the buy side will still pay for what they value

The rapidly evolving regulatory landscape for investment research was of course top of mind, and all panels touched on the no-action letter expiry and movement towards rebundling in Europe. Participants agreed that the no-action letter will indeed expire in early July, and nobody retains any hope for a further extension at this point. There was also consensus on who is responsible for compliance after the expiry – panellists agreed that the onus is with brokers alone to make sure the rules are followed. The buy side has the cash, but it’s the sell side who must work to make sure they can accept it.

This consensus didn’t extend to how global firms plan to handle the mixture of regulatory frameworks which will come into effect once the letter does expire. Familiar options are still on the table, including the international arbitrage approach (running all research through either the US or Europe, even for global clients). This time, however, panels delved deeper into the potential pitfalls of this approach: from the subjectivity of determining how European an interaction has to be in order to be conducted in Europe, to the complex tax implications of applying geographical frameworks to research transactions, there’s still a lot of uncertainty.

So what will happen when the letter expires? Attendees predicted a period of uncertainty, or even chaos, as Europe scrambles to cope with both unbundled payments under MiFID and rebundled payments in the US. However, most feel this situation will be less severe than anticipated, and only a temporary issue. While not everyone has a strategy in place, many firms do, which is likely to minimise disruption. And ultimately, most expect the research market to become unified once more over the next few years, as Europe transitions back to bundled payments.

Panellists acknowledged increasing consolidation across the US and Europe, citing examples of this occurring both by force and by choice. A recurring question was to what degree the buy side can expect to share in the efficiencies gained here. While a hard-and-fast answer did not emerge, it seems that clients can expect to see some savings passed on.

Discussions around corporate access reflected on the lingering effects of the pandemic. For all panellists, in-person events are certainly back, and mid-pandemic predictions of an end to travel have proven exaggerated. But at the same time, the convenience and speed of the pandemic era’s well-developed remote communication systems remains useful. While virtual interactions are here to stay, most agreed that hybrid events – incorporating both in-person and virtual attendees – have not been a success as it’s too hard to balance two very different audiences. The end result? We’re back to meeting in person, but where people might once have spoken on the phone, they now book a video meeting.

Another topic common between most panels was the current state of the research market, particularly in relation to wider uncertainty and volatility. Although most acknowledged that budgets are both smaller and under greater scrutiny than before, we heard resoundingly that the buy side’s need for quality research which helps drive growth is unchanged, and they remain willing to pay for it. 

Singletrack has supported Unbundling Uncovered since its inception, and we always look forward to the lively and high-value discussions which happen there. This year’s New York meeting was no exception and could not have been more timely. We look forward to joining everyone again in London in November when we will have finally learned what the post-expiry landscape looks like. There’ll be plenty to discuss.



Published: 29/06/2023