What effects, if any, have been felt after the new directive launched in January 2018

The European Union’s revised Markets in Financial Instruments Directive, or MiFID II, came into effect at the beginning of 2018, an update of the existing framework for regulating investment services companies. While predictions of its effects ranged from the merely dire to the apocalyptic, early signs indicate far less dramatic consequences.

Still, the changes are significant. MiFID II requires fund managers to pay banks and brokers directly for analyst research, instead of receiving research for free with the cost reflected in trading fees. This could cause a drop in good quality research from sell-side firms, particularly for small- and mid-cap stocks. Such changes raise other questions; for instance, if fewer analysts cover a stock, how will the market reach a consensus?

Though it targets the EU, markets from the US to Asia are bracing for aftershocks. Trading, transaction reporting and client services to IT and HR systems could all be affected. The aim is to provide better value to investors, but an unintended effect could see liquidity in certain stocks reduced, creating more volatility.

Companies will need to articulate any investment case more clearly, and utilize digital media in a way that ensures they punch through the wall of noise
to reach their audiences.

 

Amelia Pan is a Partner in Brunswick’s London office.

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