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November 2016

Independents on the Rise: Spotlight on Asia

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Progress toward unbundling of payments for execution and other broker services is gaining traction in Asia.

In a recent article published on, UBS called the unbundling of commissions the “next big thing” in Asian equities, citing the 150 participants that recently attended its conference in Hong Kong as evidence of keen interest in what is already a key issue for UK-based firms.

In this piece, we examine the current investment research landscape in Asia and ask whether global trends towards research unbundling will positively affect the space.

The Current Investment Research Landscape in Asia

There are currently only a handful of unbundled research providers in Asia.

Some analysts have argued that the diverse nature of the region’s markets is to blame. Institutional investors are reportedly more reliant on their sell-side counterparts than in Western markets because of the difficulties in accessing sufficient liquidity and sourcing valuable research across the region. These difficulties have led portfolio managers and traders to form a closer link between research and trading.

“In Asia, you can’t only focus on the trading desk if you want your business to be successful and scalable,” says Jesse Lentchner, CEO Asia-Pacific of institutional broker BTIG in a recent article for The Trade. To reach the same level of penetration we have in the US, we have to cover fund managers and research analysts as well as the trading desks. But I do expect unbundling to continue apace in Asia.”

As the region continues to develop and the number of premium unbundled research providers increases, however, the space is expected to change. Sell-side firms who provide unbundled insight into Asian markets have already begun to gain market share in the region, and their growth in popularity is only expected to grow as the rest of the world moves towards unbundling.

The Global Appetite For Research Unbundling

The appetite for research unbundling is stronger in some markets than others.

In Europe, regulators are in the process of rolling out an ambitious series of financial reform that will force sell-side firms to separate research spend from execution costs. The revised

Markets in Financial Instruments Directive (MiFID II) is planned to take effect in January 2018.

It has been widely reported that MiFID II will disrupt the European investment research space, costing global investment banks billions to implement the changes required to comply with the new rules.

Those best placed to benefit from the disruption are not the global banks who dominate the space, but independent research providers. Since independents will not have to radically alter their internal processes and operational procedures to comply with the new rules, they can focus on attracting buyers from day one.

The European regulation will provide an impetus for institutional investors to choose research providers that provide a strong return on investment, since their research spend will be more explicit once MiFID II takes effect.

“Though the precedence of unbundling is emerging from Europe, the general view held across the industry is that this will have a global operational impact on asset managers operating across regions.  And beyond this, clients are already demanding transparency in price and value for research, with or without MIFID II.  It’s not a matter of if, but when.  We have seen a significant increase in interest in this topic in Asia over the course of the last 6 months,” says Jon Foster, Co-Founder of Smartkarma.

For more on MiFID II and our coverage of the rise of independent research providers in Europe, read our blog post here.