Tabb Group. By Sayena Mostowfi and Valerie Bogard.
The heightened regulatory focus on the buy side serves as a catalyst not only for further data collection and operational transparency, but also for buy-side firms to measure costs and impact, and to prove best execution. Not surprisingly, many of these efforts rely on new data acquisition, technology, and analytics, and many buy-side firms are seeking third-party vendors to alleviate the operational burdens.
In the years since the financial crisis, financial services firms have remained in the regulatory spotlight. In US capital markets, the waves of regulatory scrutiny now have moved from exchanges and broker-dealers to the buy side. And in Europe, the revised Markets in Financial Instruments Directive, or MiFID II, is fundamentally transforming buy-side business operations.Due to the global nature of the financial markets, client demand and competitive forces, however, this European regulation is expected to impact the US as well. According to a recent TABB study of 100 asset managers and hedge fund firms, approximately 66% of participants believe that even if MiFID II is never implemented in the US, it will impact them, up from 38% last year.
Within this global landscape, the buy side faces heightened scrutiny, ranging from fiduciary duties and trading/research cost allocation to investment strategies’ impact on financial stability. The regulatory focus serves as a catalyst not only for further data collection and operational transparency, but also for buy-side firms to measure costs and impact, and to prove best execution.
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