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Digital Transformation of Buy-side and Sell-side Engagement

Global regulations, namely MiFID II has done much more than increase the value of compliance professionals and constrain the availability of a bank’s balance sheet. It’s changing the way the industry communicates and with it the fundamental nature of the relationships – starting with digital transformation.

A growing need to create more efficient and timely communication within the investment community is advancing the implementation of new technology solutions to facilitate better engagement between the buy side and sell side. Regulation largely initiated this spark in innovation, which caused investment managers to provide investors with greater transparency into the value of services consumed from the sell side. Now, an opportunity exists to transform traditional processes that have been the foundation of the long-established partnership between sell-side and buy-side firms.

One such process, corporate access, is a big part of that change. Somewhere along the way the regulators and participants in the industry misplaced the understanding and value of delivering quality corporate access. If done properly, it is more than just arranging a meeting between a company and an investment manager. It’s about the linkage to research and the industry expertise of the analyst. A quality engagement involves an analyst with deep industry expertise, discussing their insights and industry knowledge, all leading to a properly prepared meeting with a company. The best analysts and sell-side firms treat corporate access as an extension of their research as they understand the value of providing due diligence to an investment manager before they transact.

Unfortunately, MiFID II has changed the market for corporate access in drastic ways. Too much emphasis is placed on the coordination of a meeting and less on the content. While it’s unlikely many of these changes were intended, this is how things have evolved.

This created both confusion and opportunity. Prior to MiFID II, corporate access, while highly valued, was delivered in an unstructured manner to clients and in a disparate way. With the new regulatory requirements came a chance to reboot the way relationships work, to create more transparent and efficient systems which are changing the way corporate access is consumed. In the near future, technology will enable the sell side to better manage the distribution of its corporate access events and research, targeting the buy-side firms that value and are willing to pay for the service while reducing the cost of delivery and improving the cost of delivery.

The buy side will take a more active role, working alongside the banks but with much more control of their content and access than they previously had. They will also have the confidence that their interactions remain more private than before and will not be dissipated across systems. It will also reduce the overall cost of the relationship. Perhaps best of all, a more collaborative approach to relationship management will result, with the bank, corporate, and investment manager operating on a more equal footing.

To put it simply, technology and digital transformation will help streamline and standardize the engagements allowing participants to re-focus on a more value-add proposition. With the proper technology, the emphasis on logistics withers away, as advisory and due diligence will return to soak up the spotlight.

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