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The latest version of regulatory and Wall Street whack-a-mole is, as usual, going to miss the target.
In the "never-ending battle for truth, justice, and the American way" - and, oh yeah, profits - big investment and trading banks announced a major new change. All the big banks you know and love are about to charge the money managers they execute trades for, and service in ways most of you have no idea, an arm and a leg for research.
It doesn't matter if the research is ineffective, which most of it is. It doesn't matter if it's valuable insider-type information, which some of it sometimes is. Banks are going to charge a pretty penny for it.
Why? Because it's worth it, darn it.
And because new regulatory rules will force them to hold their hands out.
Here's what Morgan Stanley reportedly wants to bill $2,500 an hour for, and whether or not it's worth the price tag...
Just How Much Is Research Worth?
Wall Street research is gamed. Sometimes the recipients of that research are gamed, or the whole public is gamed, or it's worth a lot more than what anyone's paying for it.
That's because research is "free" and has been used to benefit the banks that disseminate it.
Of course, their research isn't really free. There's just no direct charge for it.
Typically, money managers pay for research by directing their trade orders for execution to bank desks whose analysts' research they receive. Sometimes flat commissions incorporate the cost of research.
Other times, and quite often, research or other services are paid for when a money manager executing trades tells the desk executing their orders, "put an extra (something) on it." Translation: Charge me more in commissions on this trade.
Shortly, because of European rules going into effect on Jan. 3, 2018, banks will have to charge separately for the research services they offer.
What's known as MiFID II (Markets in Financial Instruments Directive) requires European research providers to bill clients separately for research services. Because many big European banks do business in the United States and big American banks do business in Europe, American banks plan on following MiFID.
Morgan Stanley is reportedly considering charging as much as $2,500 an hour for one-on-one meetings with their top analysts. That's more than double the hourly rate charged by the most prestigious and expensive law firms in America.
The actual hourly price will likely be determined by the analyst's track record, seniority, and ranking, and the level of access sought.
Another model has Morgan Stanley charging $25,000 for five users' access to the bank's basic research.
Other banks are negotiating pricing with prospective clients too.
Bank of America Corp. is supposedly quoting up to $80,000 per user for premium research. Nomura Holdings Inc. has quoted $134,000 for premium research. Barclays Plc. may charge $455,000 for its "gold" equity research. And JPMorgan Chase & Co. is proposing a $10,000 entry-level charge.
The real question is whether or not clients will be essentially throwing that money away.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.