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Efforts by banks and asset managers to dilute planned European Union rules on paying for research on stock picks are being rebuffed by the bloc's executive, a draft EU document showed. The European Commission is writing rules to implement an update of the EU's securities trading law known as MiFID II.
The revision comes into effect in January 2017 and includes new curbs on how asset managers can charge customers for the cost of trading shares and for research they get from banks and brokers on stocks. At present, brokers supply research to asset managers for no upfront cost, and instead expect to be rewarded with share trading orders.
A draft document seen by Reuters shows the EU executive is backing full unbundling or separation of research and trading fees or commission. Industry has called for a less onerous option of increasing transparency. "Investment firms providing execution services shall identify separate charges for these services that only reflect the cost of executing the transaction," the draft commission document seen by Reuters said.
"The provision of any other benefits or services shall be subject to a separately identifiable charge; the supply of these goods or services should not be influenced by or be conditional on levels of payment for execution services." Industry wants "commission sharing agreements" (CSAs) for disclosing fees, warning that full separation would prompt asset managers to avoid buying research on small, less traded companies who in turn would find it harder to raise funds on markets.
The document sets out a structure for dedicated research payment accounts at asset managers in a way that one industry official described as "the death of CSAs". The commission writes that the document is for discussion and not a final version. An impact assessment will be mindful of the need to avoid unintended consequences for its objective of promoting growth. The objective of breaking the link between the purchase of research and the payment for execution and of disclosure regarding the costs of research needed to be maintained, it added. As drafted so far, it generally backs advice from the bloc's markets watchdog, the European Securities and Markets Authority (ESMA) last December.

Copyright Reuters, 2015

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