The European Commission (EC) has published the first in a series of highly anticipated delegated acts, defining some of the crucial details for MiFID II. Most relevant in yesterday's document is the unbundling of research and execution fees, where the EC has largely followed the advice given by ESMA back in December 2014. In true MiFID II style, a new acronym is introduced, each side of the argument is given some concessions and the man on the street will doubtless remain as baffled as ever by how entangled the rules governing financial markets have become. It's like DVC (double volume cap) all over again!
But let's start at the beginning. Firstly, MiFID II will go ahead with the introduction of the RPA construct (Research Payments Account). Secondly, Article 13(1) clearly states that research is considered an inducement (demand by one side) unless it is paid directly from the buy-side or through an RPA. Interestingly, research is a pretty loaded word in the context of MiFID II and a discussion on that could take up a whole other blog. Thirdly, Article 13(3) seems to imply that CSAs can remain in use (demand by the other side) so long as they meet the RPA requirements.
For any buy-side firm that just doesn't want to deal with all that added complexity, outsourcing probably looks pretty appealing right now. And as luck would have it, the legislators were thoughtful enough to provide rules around outsourcing of RPAs under Article 13(7). I just wonder how firms will pay for that.