In what seems like a cross between a John le Carré novel and an episode from British sitcom, ‘Yes Minister’, the market’s approach to impending regulation concerning the payment for research is seemingly being influenced by a variety of leaked documents.
These documents, emanating from ESMA and relating to the MiFID II, contain much detail about the possible final delegated acts as they pertain to research, inducements, payments and what the buy-side will need to put in place.
This is all very baffling. There are really only 3 reasons for documents or information to be leaked:
1. Misinformation : whereby erroneous information is deliberately leaked in order to mislead or confuse an audience;
2. Pre-announcement : whereby the author, perhaps with a feeling of guilt at continued delays or in an attempt to gauge possible reactions and acceptance, states the content of a publication before actually releasing it – much in the same way that politicians seem to favour telling the public the content of their speeches before actually standing up; or
3. Incompetence : whereby the author has a lack of controls to ensure that everything is kept under wraps until publication date.
I think it is safe to discount reason 1 on the basis that we’re not looking at some Orwellian dystopian society, but the authorities overseeing the world’s largest financial market. Therefore, ESMA has either deliberately released information early to allow the market to assess and to prepare, or there has been a ‘cock up’. Or, possibly, a combination of the 2.
Whichever proves to be the reason, the outcome is clear. Although the final delegated acts may not be identical to those in the leaked documents, there is no doubt that much will be included. The market has been given a clear ‘heads up’. Firms should start looking now at processes surrounding their use of research in terms of how they value it, how to set budgets and how to manage and monitor payments.
But rather like Sir Humphrey Appleby, “It is not for a humble mortal such as I to speculate on the complex and elevated deliberations of the mighty.”
However, given ESMA’s delays, the ‘undemocratic’ leaks plus the possible cost of this whole process, we should perhaps leave the last word with Minister James Hacker, whose thoughts on the Civil Service modus operandi was : “it takes longer to do things quickly; it’s more expensive to do them cheaply; it’s more democratic to do them in secret.“
- 28 Dec, 2015
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- ESMA, MiFID, Research,