Liquidnet Diversifies By Expanding Data Business

Liquidnet, the global institutional investment network, is creating Investment Analytics as a new business to help portfolio managers and analysts get more intelligence into their workflows more quickly.

Vicky Sanders will lead the new division which will be separate from Liquidnet’s core equities and fixed income trading businesses. Sanders was a co-founder of RSRCHXchange, which used technology to aggregate and build a marketplace  for institutional research, and was acquired by Liquidnet in May last year.

Sanders told Markets Media: “Investment Analytics will be building a new application so managers can easily access the data that Liquidnet already has under its roof from the integration of RSRCHXchange, OTAS and Prattle.”

Liquidnet also bought sentiment analysis provider Prattle last year. OTAS Technologies, an artificial intelligence powered buy-side decision support and analytics provider, was acquired in 2017.

“We will use natural language processing, artificial intelligence and advanced search to empower portfolio managers and analysts to find the right content,” she added. “Financial services under-utilise available technology.”

Sanders continued that Investment Analytics aims to help portfolios managers and analysts get more intelligence into their workflows faster.

“There is a lot of demand for alternative data from fundamental managers, who have not been using it in their investment process as much as systematic and quant managers,” she said.

Diversification

Sanders added: “Investment Analytics is an exciting venture to help diversify Liquidnet’s core business and an extension of services for our client base.”

Vicky Sanders, Liquidnet

Mike Mayhew, founder of Integrity Research, said on the research consultancy’s blog that it is clear that Liquidnet has been planning to expand its business outside trading for the past few years.

Mayhew continued that appointing Sanders to run the new group makes considerable sense given her experience working with buy-side clients at RSRCHXchange, Marex Spectron and Goldman Sachs.

“The key questions for Sanders and her Investment Analytics colleagues is exactly how to convince potential research and alternative data providers to partner with them, what “must have” solutions they believe they can develop, and how best to commercialize these opportunities,” he wrote. “It will be exciting to watch Liquidnet’s upcoming product development initiatives and future acquisitions as it looks to implement this aggressive new vision.”

MiFID II

Sanders said: “Both the buy side and the sell side are under margin pressure and need to innovate. Trading has been transformed and European Union regulations cast a light on portfolio manager and analyst practices that were unexamined for a long time.”

MiFID II mandated the separation of research payments and trading commissions, which had traditionally been bundled together. There have been concerns that the regulation has had an adverse impact, especially on research for smaller companies.

Robert Ophèle, AMF

The AMF, led by chairman  Robert Ophèle , said in a statement this month that it is planning to review the MiFID II research requirements. The French regulator said it had asked Jacqueline Eli-Namer, AMF board member, and Thierry Giami, president of the French Society of Financial Analysts, to analyse the impact of MiFID II on investment research and explore possible areas of improvement.

Eli-Namer and Giami made six recommendations – to support the development of issuer-paid research; to ensure the proper functioning of the research market so that research is not offered too cheaply; authorising research consumers to benefit from separate trial periods; to exempt independent research from the inducement regime; determine the level of proportionality that is most likely to boost the coverage of small and mid-caps and encourage initial public offerings; and to prepare for the emergence of environmental, social and governance research.

The study said research offered at a very low price may be likened to an inducement, the receipt of which is currently strictly regulated by MiFID II.

“The AMF will reiterate this interpretation in its guide as well as inviting clarification of this point in European discussions, ideally in an ESMA Q&A,” said the regulator. “In addition, the AMF will propose the introduction of a concept of “reasonable commercial basis” in the European regulation on research, which would be to bring the price of research into line with its cost of production.”

The regulator said it considers that ESG matters are of major concern and has indicated that in 2020 it will pursue its roadmap for sustainable finance.

“It is essential to ensure that financial analysts have at least basic knowledge of non-financial matters,” said the AMF. “In this regard, the AMF welcomes the report’s recommendation to develop training and certification.”

US research

Sean Tuffy, head of regulatory intelligence, custody & fund services at Citi, said in a report  that MiFID II unbundling is continuing to have an impact in the US. The report, What Does it Mean for FinReg?, said that at the end of last year the US Securities and Exchange Commission extended its relief on the application of MiFID II research unbundling requirements from July 2020 to July 2023.

Sean Tuffy, Citi

Sean Tuffy, Citi

Tuffy said the industry has generally welcomed the extension because it removes any uncertainty about the relief expiring.

“However, institutional investors and consumer advocates have been pushing the SEC to adopt research unbundling in the US,” he added.

Some global asset managers would like the SEC to allow the option to deploy unbundling in the US, though not necessarily require it, so they have a single research policy for their whole business.

“When announcing the extension, the SEC stated that it needed more time to study the issue,” said Tuffy. “In the meantime, as unbundling becomes more common, the SEC will likely face pressure to come up with a long-term solution for this issue.”

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