Suddenly there are a half dozen new research distribution platforms with least a couple more in development. The plethora of new platforms signals major changes to research distribution.
Why the sudden interest in distributing research? One impetus is regulatory, under the assumption that as regulators push to unbundle research, distribution patterns will change. Partly the platforms reflect growing appetite for independent research in Europe and Asia. The new platforms also part of a larger technological assault on the financial status quo.
An innovative variety of approaches
In contrast to sales-oriented platforms offered by agency brokers and investment banks, the new platforms put their faith in technological solutions, in some cases emulating successful ecommerce websites. Silicon-valley financed AIREX™ Market models itself on Amazon and now offers priced research and software products from around 20 sources. The firm recently recently received recognition as ‘most innovative market data vendor’ at the North American Financial Information Summit hosted by Inside Market Data and Inside Reference Data.
The most recent launch is Hong Kong-based Seed Alpha, a platform developed by the head of the independent research trade group AsiaIRP. The platform has been described as an iTunes for research, but the firm plans to charge the buy side for its software rather than extracting a commission from research firms for distributing research.
New startup RSRCHXCHange is a London-based platform which seeks to use technology to make it easier for the buy side to on-board new research providers. Like Airex, RSRCHXCHange has an Amazon-inspired vision for distributing research. The platform plans to launch later this year.
Launched last fall, Edinburgh-based Electronic Research Interchange (ERIC) initially adopted eBay’s model by hosting auctions and buy-it-now options. ERIC is now developing a research budgeting tool to attract buy side users to the platform. It also is seeking to add investment banking research to the platform, supplementing the dozen or so independent research providers (IRPs) initially included.
Paris-based Alphametry bills itself as an Airbnb for equity research (don’t analyze the metaphor too carefully.) The platform has been in development for the last year and plans to offer long and short trade ideas and pairs trading strategies from individual experts and IRPs when it launches later this year.
We are aware of two other London-based distribution platforms in development.
Conferences and Magazines
The new distribution approaches are not limited to aspiring online marketplaces. Hong Kong-based IRP Journal distributes research in a magazine format, generating advertising to cover costs.
London-based Research for Investors specializes in organizing conferences for the buy side to be exposed to trade ideas and insights from research providers. The initial conference, First Global Independent Research Conference, was held in London in March, with additional conferences being planned for London and Geneva.
The impetus for change
It is no coincidence that the majority of new platforms are originating in Europe and Asia. Partly this reflects the growth of independent research outside the U.S., where independents have lower market share of research spending and buy side interest is increasing.
The new startups are also part of a larger technological movement to disrupt and disintermediate arcane financial industry practices.
However, the prime mover is pending regulatory change. Despite their diversity of business models, the new platforms share a common expectation that MiFID II’s unbundling of research from execution will radically disrupt current research distribution practices.
The “free” fire hose of research, gushing into buy side inboxes, will become budgeted and priced, presumably with the buy side becoming more discerning in what research truly adds value to its investment process.
The new platforms generally envision a world where research is sliced and diced, as well as priced, where the buy side will trundle shopping carts brimming with the research they want to purchase.
The sheer volume of new platforms signals major changes are occurring in the research landscape even though altering the hidebound forms of research distribution will not be easy. In aggregate, ignoring the merits or failings of specific platforms, surely research distribution will change? Most likely, but one should not underestimate the resiliency of the current regime.
In many ways, the plethora of platforms reminds us of the frenzy anticipating the Global Research Analyst Settlement in 2003, when independent research providers were convinced that regulators would forever change the research landscape.
Despite the diversity and innovation of the new platforms, the reality remains that research is sold, not bought. Unbundling will not change that fact. The ability to pay for research with client commissions represents a generous subsidy for research, one that European regulators seem willing to curtail. But even if they do, there remains more research than the buy side can consume. Supply exceeds demand.
What the majority of new platforms underestimate is the importance of sales. The role of the institutional salesperson is to tailor the research to the interests and demands of the buy side analysts and portfolio managers. This is a nuanced, sophisticated process. Can technology ultimately replicate this? Yes, but it is not as simple as trying to replicate Amazon or eBay.
The extraordinary proliferation of research distribution platforms is a legitimate signal of profound change. There is no question that research procurement will become more disciplined and discriminating even if regulators stop short of full unbundling. The new platforms also rightly anticipate that the appetite for independent research is growing in Europe and Asia. However, we doubt that buy siders used to being spoon-fed research will morph overnight into consumerist shopaholics.