In anticipation of MiFID II and the numerous changes the directive is expected to bring to the EU financial markets, one of the hot topics has been ESMA’s proposal for reform of the current regime for use of dealing commissions. ESMA had proposed that asset managers should pay for research from a separate account, with charges agreed in advance. This proposal received mixed feedback from asset managers and brokers throughout the UK and Europe and has since been widely discussed. It has been the industry’s stance that such a drastic change is unnecessary and, suggest as an alternative solution, expressly spelling out fees for research in advance should be enough.
On 14 December 2015, Reuters reported having access to a draft document by the European Commission signaling somewhat of a win for asset managers and brokers throughout the industry. The document seen by Reuters sets out a conditional arrangement upon which Commission Sharing Agreements will not face the ban previously anticipated. The conditional arrangement is reportedly as follows:
“Every operational arrangement for the collection of client research charge, where it is not collected separately but alongside a transaction commission, has to indicate a separately identifiable research charge,”
This would seem to suggest that Commission Sharing arrangements may continue so long as the research charge is clearly identifiable.
In addition, the document adds that a single payment cannot be linked to the volume and/or value of transactions executed on behalf of customers. The new condition was driven by ESMA’s concerns that CSAs allow the amount charged for research to be determined by the volume of transactions, which gave an incentive for brokers to trade more than is required at investors’ cost.
Firms should note that although seemingly good news, the document is still at the draft stage and as of the time of this publication ESMA’s website still reveals no official update on the matter.
Please do get in touch with us, your external in-house counsel, if you would like to speak to us about any aspect of MiFID and what it means for your firm.