Brokers giving away best trade ideas leads to unexpected payday

IAN CONWAY doesn’t just give away his best trading ideas. He pays to post them online.

That’s how Mr. Conway, his colleagues at London- based Avalon Capital Markets and, increasingly, thousands of market professionals promote their wares. In return, investors pay whatever they think the idea is worth.

In a world turned upside down by new rules on how research is paid for, this is one model — known as “alpha capture” — that is gaining traction. It’s a tool for investors to help establish the value of ideas now that banks are about to be barred from bundling research costs into trading commissions.

“We’ve seen quite a big change in demand from more fundamental firms for trade ideas,” said Colin Berthoud, whose TIM Group provides one of the biggest alpha capture platforms. “We’re also seeing big new firms who haven’t had a trade idea program in the past. There is a need for a quantitative assessment in a way that there hasn’t been historically.”

The demand stems from European regulators’ rewrite of their financial rulebook known as MiFID II, which comes into force in January. What was once a buffet of services attached to trading will soon transform into a system where research, corporate access and trade-execution services must be bought and sold a la carte.

Alpha capture platforms have been tracking and ranking trading ideas from brokers for more than a decade — they’ve been a staple at some hedge funds for years. But they’re growing. Research firm Tabb Group says 2017 spending on alpha capture will represent about 5.8% of total global paid commissions,