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Mifid II regulation has unintended consequences, most notably a predicted negative impact on sell-side research coverage of smaller companies. Traditionally, research analysts produced detailed notes on companies to boost stock sales, raising their profiles, but Mifid II requires separating research costs. Brokers can no longer cover these costs through commissions and are cutting research teams, meaning fewer small-cap companies will receive coverage. Less research could lead to less trading and lower liquidity for some stocks.

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1K views1 page

Qqqqaaaa

Mifid II regulation has unintended consequences, most notably a predicted negative impact on sell-side research coverage of smaller companies. Traditionally, research analysts produced detailed notes on companies to boost stock sales, raising their profiles, but Mifid II requires separating research costs. Brokers can no longer cover these costs through commissions and are cutting research teams, meaning fewer small-cap companies will receive coverage. Less research could lead to less trading and lower liquidity for some stocks.

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Th3.N3w813
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We take content rights seriously. If you suspect this is your content, claim it here.
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Inevitably, there are some unintended consequences of regulation as far-

reaching as Mifid II. By common consensus, the worst aspect of Mifid II is


predicted to be a negative impact on the volume of sell-side research covering
smaller companies. Traditionally, analysts produced detailed notes on
companies as a value-added service. While this was not entirely independent
(after all, its purpose was to boost sales of stock) it raised companies’ profiles
with investors and was a valuable starting point for independent research.
Since Mifid II, however, the rules requiring best pricing for clients on all
activities has required separating out the cost of research, which is expensive
to produce. Sell-side brokers can no longer cover this cost by adding it on to
the commission they charge institutional clients. The result is that brokers are
cutting down their research teams, and fewer companies – especially in the
small-cap space – are getting coverage. The concern is that less research will
mean less trading activity for some stocks, which means less liquidity and a
lower NMS. On the one hand, the price may be lower. But if there is a spike in
activity on an exciting piece of news for a stock, the lower liquidity will mean
trades struggle to get filled until the price has risen.

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