Brokerage CLSA lays off 90 US staff as its cuts equity research unit in the country

Industry adjusts to a world where research has to be paid for

PUBLISHED : Tuesday, 28 February, 2017, 3:31pm
UPDATED : Tuesday, 28 February, 2017, 11:18pm

CLSA, the Hong Kong-headquartered brokerage, is cutting 90 US jobs and closing its equity research unit in the country, as the industry grapples with how best to charge for research.

Positions in US domestic research, sales, trading, corporate access and associated support functions will all be affected by the losses, said Hong Kong spokeswoman Simone Wheeler.

She added CLSA, which is owned by Citic securities – which is partly owned by the Chinese-owned conglomerate Citic Ltd – would now move to an execution only strategy in the US.

The company will now is looking to expand in the US in fixed income and funds advisory services, Wheeler said.

CLSA chief executive, Jonathan Slone, said in a statement: “While focused on the client we must also run our business for positive returns.”

He added the brokerage remained committed to the US which he described as “a market that offers great opportunity for growth in multiple business lines”.

Banks and brokerages are currently having to rethink how they treat equity research, due to regulatory changes in Europe and a decline in willingness by investors to pay for research.

“We predict a decline in research spend globally of between 25 and 30 per cent by 2020,” said Benjamin Quinlan, chief executive of financial services strategy consulting firm, Quinlan & Asssociates.

“I anticipate that more brokerages will be looking to reduce headcount in equity research.”

Last year the European Commission published new rules under the MiFID II (Markets in Financial Instruments Directive) initiative that makes brokerages provide both research and execution services, and price them separately.

In the past, the two have been bundled together with research, often provided for free in the hope that the research provider would pick up trading commissions.

Slone denied the change was the only factor in shuttering CLSA’s US operations, but acknowledged that the changing environment had played a role.

The US closure “was not made with any particular rule in mind,” he told Bloomberg.

“You could say that the overall shift on payment for research was part of this, but this has been a long evolving process linked not only to MiFID but a whole host of changes.”

Quinlan said the industry still had a way to go when it comes to adjusting to the changes.

“Talking to clients, what the sell side wants to charge for research and what the buy side is willing to pay, are still quite far apart,” he said.

“I predict research will become more specialised with fewer brokerages providing waterfront coverage, but rather focussing on specific areas,” he said.

CLSA Americas will continue to offer Asian research and global execution services to US clients, and Asia sales and Asia trading teams located in the US will not be impacted by the changes.

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