Spread Research analysis of the regulatory changes brought by MiFID II
as from 3 January 2018 and our value proposition in this context


For many investors, MiFID II this year amounts to a lot of time and effort to ensure compliance with unwanted changes. They may take the line of least resistance, focusing purely on how much it will cost them to retain the research services they already receive and, if the budget doesn’t stretch to all of them, which they will have to dispense with. At best they will end up having preserved their own status quo.

Others will see the changes – which look in any event unavoidable – as an opportunity to conduct a comprehensive review of their research requirements and the pool of available providers, brokers and independents. They will realise that they hold powerful leverage when it comes to agreeing prices and services with sell side vendors currently supplying their research in a bundled fashion. Sell side banks are uncertain how much to charge, it is unknown territory for them, and may try to retain a packaged approach by asking for a sum for all their research.

Any such approach is on the way out, whether now or over the next couple of years. Sell side sales and traders will end up having to charge a fee for their research, which accurately reflects their costs, which have been inflated over the years by the absence of a profit motive for research in isolation. They will also end up having to scale down or shut down research in areas where they cannot provide research at a profit.

Active end-users of research will probably be able to tell trading counterparts which areas of their research they are willing to pay for and ignore the rest. And the price asked can then be set against the cost of independent research services, allowing you then to assess the quality of both and to decide according to your preferences and interests.

This may be teaching grandma to suck eggs. But it’s worth stressing that independent research providers such as Spread Research have been operating in this fashion since their inception and fully independently from transaction dealflows. They are flexible and responsive, attuned to the needs of their clients. MiFID II offers you an exceptional opportunity as well as cost, to use the changes to achieve an external research coverage, which represents the best available value for you.

When it comes to credit analysis, Spread Research is happy to set its service, supported by its track record, against any other available service. We only ask for the opportunity.

If you liked MiFID (‘The Markets in Financial Instruments Directive’) back in 2007, you will love the new version, MiFID II, that is coming into force on 3 January 2018.

This very heavy piece of legislation aims at delivering a fairer, safer and more efficient market. In so doing, it will undoubtedly have a significant impact on your business, including the way you select and consume Credit Research.

As is always the case in such circumstances, this new paradigm will bring both opportunities and challenges. Having been a leading provider of independent research directly paid in hard dollars by the buy-side for almost 15 years now, Spread Research is very well positioned to help you meet – and potentially benefit from – the new regulatory requirements.

What is MIFID II

An overview of the objectives of MiFID II and how the changes will impact you.


Who is impacted

An analysis of who will be impacted even before 2018


How you will be impacted

With what you exactly have to comply


MiFID II for Investment Research

What are the valuation requirements?
How to source research which complies?
How to pay for investment research?




Spread Research Portal

What is MiFID II

MiFID II is a broad set of market reforms and investor protections. Among its goals are (i) to increase the transparency of investment management, and (ii) to protect investors in mutual funds through improved disclosure of fees.

When it comes to the production and consumption of research, the Directive and its surrounding regulatory texts :

  • require banks and brokers to explicitly split their charges for execution services from investment research. The operating model prevailing thus far with these FI research producers has been an implicit charge bundled within the trading fee, itself embedded in the bid-offer spread. Not conflict-free or opaque pricing. Payment or receipt of inducements creates an inherent conflict between the firm’s own interests and those of its clients. This had to be remedied.
  • require you, the buy-side, to put in place a process whereby you select and directly pay for the research you deem necessary to enhance the service you offer to your clients. You have to interact with the latter on a regular basis to review the usage and pricing of the research you consume.

With respect to investment research, buy-side firms will no longer be able to cover the cost of research with bundled commissions. Research will have to be assigned explicit prices, in particular via subscriptions.

It is expected that independent research providers without trading operations and who are paid directly for their research, such as Spread Research, will be the winners in this brave new world. This would be quite logical as the new regulation in effect strongly supports the benefits of genuinely independent research and mandates all research producers to operate as a stand-alone profit center – not only putting a price on their services but a fair price reflecting their cost of operations and a sensible margin.

Under scrutiny from your own clients, you will have to pay for research that adds value to your investment strategies and detoxify from the tons of research provided « for free » by the sell-side: you will take the best from each provider and ignore the rest.

« Independent research firms offering little or no execution should see significant growth in the new landscape »

McKinsey, Reinventing Equity Research as a Profit-Making Business, 2017

We at Spread Research allow your analysts and fund managers make use of our pre-constructed models, laying in their own assumptions on revenues and profitability. We can meet your demand for access to our analysts, and meetings with the management of the companies they follow.

Payment mechanisms will combine the existing structure of commission-sharing agreements (CSAs) with a new research payment account (RPA). Historically, CSAs have allowed asset managers to designate a portion of their bundled commissions to pay for research In the future, RPAs will serve as a mechanism to pay for research, but spending must be budgeted in advance, and the RPA must be funded prior to any purchase of research.

You can choose to pay for research from your own P&L, or charge its cost back to clients. In the latter case, funding RPAs up to the amount budgeted can be carried out in two ways: through CSAs (‘transactional method’), or through direct withdrawals from investment vehicles (‘accounting method’).

Any payment for research should be justified based on a firm’s quality criteria and valuation approach. For a good or service to meet the requirement of being substantive research the relevant research must:

  • Be capable of adding value to the investment or trading decisions (actionable) by providing new insights that inform the investment manager when making such decisions about customers’ portfolios;
  • Whatever form its output takes, represent original thought, in the critical and careful consideration and assessment of new and existing facts, and must not merely repeat or repackage what has been presented before;
  • Have intellectual rigour and not merely state what is commonplace or self-evident;
  • Present the investment manager with meaningful conclusions based on analysis or manipulation of data.

Objectives of MiFID II

The Markets in Financial Instruments Directive (MiFID II) regulates firms who provide services to clients linked to ‘financial instruments’. The objectives of the regulation are to:

  • Increase transparency and protection for end-investors
  • Make costs of trading and investing clear and explicit

Who Will Be impacted by MiFID II

MiFID II will have a very broad impact, and probably even a global one: all European (including UK) buy- and sell-side institutions, and global firms with an European footprint. In a nutshell, MiFID II will have the following consequences:

  • Must make available your research procurement policy
  • Must select providers of your choosing and decide how to pay them – hard dollar or RPA
  • Must manage the research budget and track the value for money
  • Must review research providers on a regular basis
  • Must sign off any use of their money to purchase research services
  • Must receive evidence of the value of research on a regular basis
  • Must define and fairly apply fees for their research services which are commensurate to their cost base and margin expectation and, of course, be not related to the amount of execution business provided otherwise
  • Must deliver conflict-free research services (easier said than done for a broker but the regulation indeed massively increases the number of procedures and Chinese walls execution providers have to put in place)

Implications for selected domestic EU markets

Whilst there will be small differences in the way each EU country enforces the new EU texts, the convergence of view that domestic markets authorities have shown for some months now is quite remarkable. There is a clear shared will on the part of regulators to not let regulatory arbitrage flourish on the subject.


Back in late July, the AMF issued in sync with UK’s FCA additional information on the way it aims at enforcing the new regime. The stance is less stringent than across the Channel but the principles are the same.


The FCA, and its predecessor the FSA, have been instrumental for years in the crafting of the unbundling rules embedded in MiFID II (papers were issued on the subject just after the millennium). As a result, it is granted that UK Authorities will keep the unbundling stance post-Brexit. In effect, the FCA is in the process of transposing key unbundling and payment for research rules into UK law and has made it clear it would stick to this new model in any case.


As it is the case in the UK and France, German BaFin will implement MiFID II directives into domestic law before the end of the year. Traditionally, BaFin and the AMF have been very much on the same page with respect to unbundling.


What is MiFID II

We at Spread Research have been providing high-value, premium products for European High Yield and Convertible bonds for over 13 years now, in effect proving that a fully independent research operating model is sustainable in this area. This independent, stand-alone model can thrive, once regulatory tailwinds converge towards this pioneering business model: a shift from the current regime of supply-push to more efficient demand-pull environment.

We have never compromised our independence and consistently refused adding execution to our business models as a means for paying for research.

In this MiFID II section, you will find information related to:

  • Research Discovery and Evaluation – Spread Research offers arguably the most comprehensive European High Yield offering, with fundamental single-name analysis and access to our analyst team at its core and including sector reviews, news and our excel models that you can download. Our well-established convertible bond offering confirms our ability to gauge credit for sophisticated balance sheets and instruments.
  • Price Discovery – Spread Research offers clear rates across our range of services.
  • Usage Tracking – Spread Research, through its platform, can help you keep track of how you use the research we provide you.
  • Payments – Spread Research has been supporting transaction (CSA, to be renamed RPA owing to MiFID II) and accounting methods for many years. Owing to the absence of explicit trading commissions in the credit universe, the majority of our clients have opted for P&L method of payment (‘hard dollar’).

How we can help

Even if we could, we are not going to transform ourselves into MiFID implementation consultants and start selling MiFID II advisory services. But you can always reach out to us for a conversation on how MiFID II is likely to impact your business. Our real value has been and will remain to provide you with distinctive, value-adding research in key sectors, EHY and Convertibles, where it really makes a difference. We are not compromising our expertise and we make available every resource to further improve our service and customer satisfaction.


  • Thematic Research & Market Updates
  • Single-name and sector coverage
  • Analyst Access
  • Events
  • Downloadable Excel models
  • MiFID II Compliant: Usage & Valuation


  • Thematic Research & Market Updates
  • Single-name and sector coverage
  • Analyst Access
  • Events
  • Downloadable Excel models
  • MiFID II Compliant: Usage & Valuation


  • Thematic Research & Market Updates
  • Single-name and sector coverage
  • Analyst Access
  • Events
  • Downloadable Excel models
  • MiFID II Compliant: Usage & Valuation

Request a call

Spread Research is a European business, headquartered in Lyon, France, with offices in Paris and London. If you would like to speak to us regarding our research or MiFID II, please contact us by either completing the form below or using the contact details provided.

Spread Research SAS

20, boulevard Eugène Deruelle
69003 Lyon – France

76, rue Saint-Lazare
75009 Paris – France

Capital House
85 King William Street
London EC4N 7BL-UK


How is research impacted?

MiFID II will change the way you select, receive and use research.


  • Increase transparency and protection for investors
  • Make costs of trading and investing clear and explicit

To cut a long story short, MiFID II for investment research states that brokerages providing both research and execution services will need to supply and price them separately. The regulatory narrative – and to an even greater extent subsequent Q&A from the FCA and ESMA – bluntly state that the surest way for you to de-risk from potential conflicts of interests is to buy your research from standalone independent research providers – so much so as independent broker research will remain an oxymoron in spite of tightening regulation

This means that under MiFID II:
  1. You must put in place clear and accessible research procurement, valuation and tracking processes and policies
  2. Research providers must unbundle and separately price research services from other broker services (e.g. execution) – not linking research to transaction volume in any way
  3. You must set client-agreed budgets upfront for specific research services
  4. You must track the usage and value of research and re-evaluate services on a regular basis
How to Pay For Investment Research

MiFID II sets out three ways for research to be paid:

  1. The P&L method – which should reduce administrative workload and ensure zero inducement risk (as per regulators’ explicit written documentation)
  2. The transaction method – Research Payment Account (‘RPA’) – a framework similar to current Commission Sharing Agreement (‘CSA’) – which is VAT-free.
  3. The accounting method – which is 100% transparent for the client.

Any increase in the research budget should be discussed with and agreed by your client first. In the event that a research budget has not been entirely used at the end of the period, there also needs to be a process for rebate, eventually. You have to provide a written policy to your clients with all necessary information, including how you plan to allocate costs fairly across various clients’ RPAs. Research charges should be kept within approved budgets, with research fees being paid based on budget, not volume or value of transaction.

Valuation requirements

You must publish your research procurement, valuation and usage policy for clients and log all research usage (analyst calls, presentations, reports read etc). You should demonstrate that research paid for improves the investment process substantively. Periodic reviews of research services have to take place so as to ensure they truly provide value-added.

Sourcing of compliant research

You should define research requirements that are commensurate to your investment policy. An effective way to be compliant with the new regulatory regime is to identify those segments and sectors on which you need specific research. We are glad to answer any question you may have in this respect.