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The New Execution Champions: Unbundling Research (Part 3 of 5)

Read The New Execution Champions: Unbundling Research

Rebecca Healey, Liquidnet’s Head of Market Structure & Strategy in EMEA, investigates how the introduction of new European regulations will impact trading in corporate bond markets in the third post of a 5-part research paper. 


The industry is on the brink of a new evolution in the provision of liquidity and execution performance. Wholesale automation of buy-side bond dealing desks has arrived, but its successful implementation will require new execution champions to step up to the fore to ensure that the asset management industry, as well as end investors, can fully benefit. The following is the third report in the series, focusing on how trading will shift as the provision of research is unbundled from execution services.

Key Facts

  1. Sell-side brokers have traditionally been compensated through spread capture, but firms now need to provide a separately identifiable charge for research and execution. This is proving challenging for many; 66% are still in discussions with their brokers over the cost of research.
  2. The full impact across the industry has yet to be felt as for just over half of the respondents unbundling remains a work in progress, indicating further change ahead for traditional buy and sell side relationships.
  3. Portfolio managers have typically “paid” brokers for investment ideas by directing their dealing desks to send an RFQ for a client order. Change is already underway; just 13% of firms still allow PMs to direct order flow.
  4. The all-important regulatory difference will be to ensure that information from the portfolio manager can contribute to the execution strategy, but it cannot necessarily dictate the outcome. As such 47% of respondents are now part of a totally segregated dealing desk, ring-fenced from the research process.
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