Published April 13, 2009

CIMB-GK offers paid research

It assures that research will remain independent from paying issuer

By LYNETTE KHOO

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(SINGAPORE) Call it a sign of the times. CIMB-GK is the latest to enter the issuer-paid research scheme that charges companies a fee for coverage.

The hook is: the annual fee of $10,000 is lower than the $13,000 that companies pay Singapore Exchange (SGX) for its Research Incentive Scheme (RIS), and more competitively priced than schemes offered by Securities Investors Association of Singapore (SIAS) and NRA Capital. SGX, which has some 103 companies under its paid-research scheme, welcomes increased coverage of listed companies.

'The SGX Research Incentive Scheme and the efforts of research firms go towards providing equity coverage of our listed companies to investors, thereby benefiting the marketplace collectively,' an SGX spokesperson said.

With dwindling brokerage fees and investors unwilling to pay for research, research houses are finding ways to defray costs. But there is still the question of independence of paid research.

CIMB-GK research head Kenneth Ng admitted that the move towards company-paid research stemmed partly from the need to defray costs, 'because the smaller-caps do not generate much in broking fees'.

But the research remains independent from the paying issuer, he assured, and the brokerage will still assess whether a company is worth covering before it initiates coverage.

The CIMB-GK scheme also provides an alternative to SGX-RIS, under which a research house has little choice over the companies that it covers, despite submitting a preferred list to SGX.

'Sometimes we get companies we don't want to write anything about, so we do this to get some choice on who we want to write on,' Mr Ng said.

Out of the 135 stocks covered by CIMB-GK, there are only seven stocks covered under the paid scheme that started this year, compared with 31 under the SGX-RIS.

Kevin Scully, managing director of NRA Capital, acknowledged that the issuer-paid scheme is 'not totally ideal' - a view repeatedly echoed during the current financial crisis, during which paid research by agencies and brokers has been widely discredited.

'People recognise there is a conflict of interest and there is a need for independent research, but no one wants to pay for research,' said Mr Scully.

Paid research reports come with disclaimer statements which indicate that they were paid for by the companies featured. While most CIMB-GK and SIAS reports carry recommendations, NRA Capital research arm NetResearch does not issue calls under its paid scheme.

The annual fees for SIAS Research and NetResearch are fairly comparable. NetResearch charges two to three times - $15,00-$22,500 - the $7,500 it would receive under SGX-RIS. There are now four companies in its paid scheme and 50 companies under SGX-RIS, out of a total of 154 companies under coverage.

According to SIAS Research vice-president Roger Tan, SIAS Research charges an annual fee of $15,000-$20,000 under its Corporate Sponsor scheme. There are about 30 companies under this scheme and more than 30 under the SGX-RIS, out of the total 80-plus stocks that it covers.

SIAS is looking to enhance its recommendations beyond the typical 'buy', 'hold' or 'sell' calls under both the Corporate Sponsor scheme and SGX-RIS, Mr Tan said. More details will be out soon.

Research by SIAS and NetResearch is also funded by subscribers. NetResearch goes a step further by allowing paying-issuers to distribute its reports to fund managers and other investors.