LONDON, April 27 (Reuters) - Brokers across the European Union will have a better idea of true customer loyalty from Monday when a new rule forces fund managers to reveal their top trading firms for the first time.
The aim is to inject more transparency into trading and put pressure on brokers and fund managers to show they are offering investors the best deals.
Brokers can spend years courting asset managers in return for business, and the new rule under the bloc’s sweeping MiFID II reform will show whether all those lunches and dinners were worthwhile.
“It will be a bit of a beauty parade,” said Linda Gibson, director of regulatory change and compliance risk at Pershing, part of BNY Mellon bank.
Fund managers and brokers must state annually their top five venues by order flow for executing their stock, bond or exchange-traded-funds trades.
“It could be quite interesting as the big worry is for the execution firms who won’t be ranked at all,” Gibson said.
Henderson Global Investors in Britain has already published its lists ahead of Monday’s deadline.
Henderson’s top five venues for share trading are Credit Suisse, Goldman Sachs, Henderson Global Investors Singapore, UBS and Merrill Lynch. For bonds, Barclays Capital tops the list, followed by Citigroup, Janus Capital Management, JPMorgan, and Deutsche Bank.
A flurry of lists are set to be published on Monday and Tuesday across the EU.
“If a fund manager and a broker really get on and that broker thinks they get all the fund manager’s flow, then on the 30th of April and they don’t appear, there is probably a bit of sensitivity there,” said Tim Cant, a financial lawyer at Ashurst.
“People have been a bit nervous on the brokerage side.”
The list could also catch they eye of Britain’s Financial Conduct Authority (FCA), the regulator of the EU’s biggest financial hub in London.
There will be cases where there are several affiliates of the firm on the list, raising questions about whether investors are really being offered the best deals.
“If you only use one venue then that is a kind of red flashing alert in some ways. Why is this broker only using one venue, though there may be reasons for that,” Cant said.
“But that is something the FCA would look at harder than at sheets where they do have five separate venues on them.”
Some affiliates of Henderson, such as Janus Capital Management, feature on its lists.
Henderson said in its disclosure statement there was no commercial incentive for Janus Henderson to route orders to different entities within the firm, and the prime objective was to assist the company in achieving the best possible outcome for clients. (Reporting by Huw Jones; Editing by Mark Potter)