blogAlternative Research Platforms
30 August 2007A recent article in Wall Street & Technology by Ivy Schmerken provides a good look at the evolution of securities research and the role that technology is playing in the increasing use of independent, third-party research by asset managers, hedge funds, and other investment managers.
Platforms are being created by major investment banks to distribute independent research:
Information and technology providers are supplying a wide range of information and tools to analyze, organize, and redistribute research:
Expert research networks similar to Gerson Lehrman or S & P’s Vista Research seem to be a natural extension of a successful independent research platform. Goldman Sachs is building such a service.
Client Commission Arrangements (CCA’s) and Commission-Sharing Arrangements (CSA’s) are enabling the increased use of independent research by making the soft dollar payment system flexible enough to include third-parties. A recent Trader’s Magazine article by Peter Chapman covers CSA’s in more detail.
The article introduces the concept of a universal technology/delivery platform, presumably meaning a single alternative research system shared by all investment banks, research providers, etc., and attributes to iSupply’s CEO Derek Lidow the prediction that there will not be no such system because of the enormous variety of research it would have to handle. The idea needs further exploration. As noted in the article, today’s buy-side equity analysts use the Internet to do much of their stock research. The Internet is a universal delivery platform, one that is already handling the complexity of a diverse set of research requirements. That it could be used for the kind of research covered in this article is almost certain. Whether it will be is less clear.
Investment-industry economics may impede adoption of a common platform, compounded by traditional Internet concerns about security, identity verification, spam, securities manipulation, etc. The incentives appear to promote an ecosystem of several large private platforms controlled by the most powerful investment banks and a myriad of mid-sized and smaller financial, information, and technology companies who function within the extended economic network of one or more of the large platforms. Borrowing more than just technology from the technology sector, the financial giants see the value of the platform position in an ecosystem as demonstrated by companies like Microsoft and Google and as chronicled by John Hagel. It’s hard to deny the influence of the large investment banks, but even harder, as Google CEO Eric Schmidt described, to “bet against the Internet”.
It seems likely that the Internet will only make further headway into previously private aspects of securities research. As pointed out in the article, analysts use the Internet today for stock research that would have required a major service like Bloomberg, Thomson, or Reuters ten years ago. Imagine the changes that will occur over the next ten years. Future postings on this forum will discuss these changes, with specific attention to the technologies that enable the discovery, organization, sharing, and distribution aspects of the research process.
Mark Soper
