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Europe Securities Regulator Drops Stock-Research Proposal
From the Wall Street Journal of Fri, 19 Dec 2014 19:29:04 EST

Europe’s main securities regulator has watered down proposed overhauls to the way asset managers pay for stock research after lobbying by the industry and some national regulators.

In rules it proposed Friday, the European Securities and Markets Authority called for greater transparency over the way broker research is paid for by fund managers to reduce potential conflicts of interest. But it dropped its previous proposal that asset managers be banned from charging investors for research out of share-trading commissions.

Opponents of the original plan, including the French securities regulator, have said the move would have unintended consequences, including a reduction in research on smaller companies. It also would put Europe out of step with the U.S., where there is little pressure for such unbundling of research from trading commissions.

Most fund managers direct trading business to firms that provide stock research and make payments that bundle the cost of research with trading commissions. Critics have said this creates conflicts and results in investors paying too much for large quantities of poor-quality research.

The European Securities and Markets Authority originally proposed that asset managers be required to pay for research out of their own pockets and then decide whether to recoup the costs from investors through higher management charges.

But in the final proposal, the European regulator said asset managers should still be able to pay for research through trading commissions, provided there was greater transparency about the costs. The rules still must be ratified by the European Commission, the Brussels-based executive arm of the European Union.

Daniel Godfrey, chief executive of the London-based Investment Management Association, said the association supported the regulator’s decision to allow research to continue to be purchased by clients. He said the move would “raise standards and reduce conflicts of interest across Europe and ensure that payments for research are clearly distinguished from payments for trading”.

The regulator’s change of position now puts it at odds with the U.K.’s Financial Conduct Authority, which in July said that it had a preference for requiring asset managers to pay for research out of their own funds.

The European regulator also included changes to the regulation of fixed-income markets that have been opposed by securities firms.

Write to David Wighton at

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