The deadline for the industry to implement the changes brought in by the second Markets in Financial Instruments Directive (MiFID II) is less than 100 days away (03/01/2019). While some aspects of the regulation are uncertain, one element is not: research and the way it is paid for has to become more transparent.
This is according to Lucas Wurfbain, co-founder of FeedStock which works as a productivity tool as well as acting as a one-stop-shop for buy-side fund managers to manage their research activities under MiFID II.
“I spent most of my career on the buy-side and my co-founder Charlie Henderson spent his on the sell-side of the equation so we both understood the relationship between the two and how inefficient it was with regards to research,” Mr Wurfbain told thewealthnet.
From this, Messrs Wurfbain and Henderson created FeedStock to help understand how people consume data so that research consumption can be tracked both quantitatively as well as qualitatively.
FeedStock also has a machine learning component which allows for a more detailed picture of research preferences and provides more value for the user. The majority of buy-side research consumers suffer from data overload. “FeedStock filters through these emails and uses a probabilistic approach to split them in to different categories which enhances productivity.”
In addition to increasing productivity, FeedStock has proven to be a useful tool when dealing with MiFID II and compliance.
“Firms have to have a predictable and proportionate system for being able to pay research providers based on quantity and quality. It is extremely time consuming to understand the value of every research interaction you have with a provider which is where we come in.”
For Mr Wurfbain, MiFID II is a positive catalyst for firms to review how they interact with research and allows for greater transparency.
He said: “With the financial crisis, the need for transparency accelerated and the regulator was concerned and focused on fair treatment for all investors. One of the components where it thought investors weren’t getting a fair deal is research payments simply because it has historically been an opaque area. The money being spent on research, and this is one of the components of MiFID II, should be seen as a business expense and it should have to be justified.”
Aside from providing greater transparency, there is also an opportunity for price discovery according to Mr Wurfbain. He stated that there is a dramatic difference between firms when it comes to research pricing.
“No one knows what the price of research is,” he said. “In order for price discovery to happen the important metric to have is consumption data and that is something that the industry has little of. Whether prices go up or down, we need more data and we can provide that. The bottom line is however that you should only pay for what brings value to you.”
While MiFID II has been a driver for the business, FeedStock is by no means just a MiFID II solution. Mr Wurfbain pointed to increasing interest from organisations outside Europe as an opportunity for expansion. “Everywhere in the world is moving towards greater transparency and while it might not be at the same rate as Europe, a presence in the US or even Asia would be very important for us.”
In terms of expansion, FeedStock recently received an undisclosed investment from London-based venture capital firm Illuminate Financial Management and, according to its co-founder, it is potentially in the market for more.
“As a growing firm we have big ambitions. We are interested in geographic expansion as well as personnel.”
FeedStock currently has eight fixed employees, three consultants and a further three advisers. It is currently looking to hire at least three or four more before the end of the year with the process accelerating in to next year.