What is MiFID II?
MiFID stands for Markets in Financial Instruments Directive. The original EU-guideline came into force on 1st November 2007, with the goal of protecting investors, integrity in financial markets and the harmonisation of trade within Europe.
Since then, new trading platforms and new products have emerged and technological developments have greatly changed the nature of trading of financial instruments. This has led to the revision of the existing MiFID and the introduction of a new regulation: Markets in Financial Instruments Regulation (MiFIR). The revision of the MiFID directive and the new regulation is better known as MiFID II and also creates harmonization with US legislation (the Dodd Frank Act (DFA). MiFID II will come into force on the 3rd January 2018.
Who will be affected?
MiFID II applies to all European companies providing investment services or conducting investment activities in the EU, such as investment banks, retail/wholesale banks, market makers and traders and brokers & dealers.
MiFID II and the end of 'free' research
As of January 2018, professional investors may not make use of 'Free' research. These hidden costs must become visible through the so-called unbundling.
With the introduction of MiFID II, research will get a visible price tag. The cost of research may then no longer be invisibly processed in the broker's commission. This will have great impact on both client agreements and actual research itself.
Checklist. Are you ready?
Are you an Asset Manager?
- You must publish your research selection process
- Which research will you use?
- Have you decided how you will pay for research? (Profit & Loss, Commission or directly yourself)
- Have you set aside a separate research budget?
- How will you track the value of research used?
- Are you aware that you will need to re-evaluate research providers regularly?
Are you an Independent Research Provider or on the sell side Bank / Broker / Dealer?
- You will need to provide a clear price overview of your research services
- High quality and unbiased research provision must be given
- Unbundle and separately price research services from other broker services (e.g. execution)
- Not linking research to transaction volume in any way
How can ECR help with the challenges of MiFID II and research?
We have been keeping a close eye on articles and releases regarding MiFID II and in particular with regard to the unbundling of research and execution costs (see section ‘MiFID II In the News and Useful Links’). It is popular opinion that independent research providers may be the great winners with the introduction of MiFID II. We do not want to cheer too soon but ECR Research has grown on its own merits for the past 40 years and we think these new rules could give us a helping hand. This should bring an end to decades of unfair competition where free research was the standard and, of course, we welcome this change and a level playing field. However, we realize that becoming completely ‘MiFID II compliant’ by January 2018 poses a major challenge for many of our clients. We hope that we can help for the following reasons:
Pricing and subscriptions - We provide a clear overview of all research categories and their prices. The categories and publications that we provide are available as a full package or can be selected individually to suit your needs.
This is our specialty - For us nothing will change; we have always been an independent provider of high quality research which is written by an experienced team.
Tracking - We can provide you with clear tracking insights into all of your research usage
Speak to us - Our experienced team (more than 200 years of combined experience) is available to speak with
MiFID II in the news and useful links
We do not claim to be MiFID II experts ourselves but for the past year we have been closely following the developments and the impact that it may have on research. In this section you can find links to related information and articles we have come across and that may be of interest to you:
- ESMA (European Securities and Markets Authority) Updates Q&A on MiFID II Implementation
- Financial Conducts Authority (UK)
- MiFID II News in the Financial Times
- MiFID II news from Investment Week
- Quick Take: How do you put a price on Investment Research?
- JP Morgan Asset Management to Fund MiFID II Clients' Research From P&L
- McKinsey - Reinventing Equity Research As a Profit-Making Business
- More Than Half the EU Is Still Racing to Comply With MiFID Rules
- New MiFID II Guidance Cautions On Research Pricing