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[LONDON] Stock market research used by asset managers must be paid for separately and not bundled into broker commission, European Union regulators said on Tuesday in the face of pushback from some lawmakers.
A new EU law governing financial transactions comes into effect in 2017 and the European Commission and the European Securities and Markets Authority (ESMA) are working on how it will be applied in practice.
Broker research would be deemed to be an inducement or benefit that should be banned from broker commission for executing trades under the new MiFID II regulations.
Instead, research must be paid for from a dedicated account funded by a specific fee and the charge should be clearly explained to the fund's customers.
MiFID is a sweeping reform of the bloc's securities trading rules to apply lessons from the 2007-09 financial crisis.
It contains a specific reform on broker commission that marks a fundamental change in market practice. Regulators are addressing concerns that asset managers are more likely to feed stock market orders to brokers in return for "bundled" research, whose cost and usefulness can be opaque to investors.
Officials from the European Commission and ESMA said research has been considered as an inducement for several years even if a ban was not binding in law.
"It's absolutely necessary to create a clear definition of what is an inducement or not to make sure this ban... is applied in the correct way," said Maria Teresa Fabregas of the European Commission said.
Some lawmakers are worried that asset managers will slash spending on research, with stock picks for smaller companies suffering in particular.
"I certainly never felt.. that we actually explicitly banned any form of research as an inducement," Kay Swinburne, a British centre-right member of the committee said.
Markus Ferber, the German centre-right member who steered MiFID through the EU assembly, said parliament would formulate its demands and it was the legislator and not the regulators.
German Green Party MEP Sven Giegold said MiFID was about paying for research separately not banning it altogether.