MiFID II – how the City is faring


Ian Silvera, Capital Markets team

MiFID II – how the City is faring

The City is still slowly adjusting to the EU’s Markets in Financial Instruments Directive (MiFID II) since the new rules came into force on Tuesday 3 January.

Billed by some as the biggest regulatory shake-up since the “big bang” of the 1980s, the ambitious piece of legislation is designed to boost transparency and fairness in the markets. But, as with any big changes, there are winners and losers.

A survey conducted by Redleaf Communications of leading wealth management firms in November found that just 55% of respondents felt they were “fully prepared” for the roll-out of MiFID II. The research also found that a vast majority of respondents (93%) thought companies, rather than investors, should pay for corporate access.

Paul Abberley, the chief executive of leading wealth manager Charles Stanley, has also warned that the regulation could negatively impact on innovation in his sector.

“We will have more dependable, robust services but we won’t have as great a range of choice and innovation as in the past,” he told The Financial Times.

On the sell-side, Keith Hiscock, boss of independent researcher Hardman & Co, has spotted an opportunity for his firm as financial research can no longer be bundled together with other services by brokers, because MiFID II aims to avoid possible conflicts of interest. 

“We are finding that more and bigger companies are interested in the sort of work that we are doing – that’s a reflection of the fact that the secondary commissioning pool has shrunk by about two thirds in the last ten years and is expected to fall on the back of MiFID II,” he told Redleaf Communications.

“There is less research, and the research is sort of retreating up the market capitalisation scale, where smaller companies are finding that they will have nobody other than their house broker and maybe one other covering them.”

Broker N+1 Singer, meanwhile, has said it is implementing a new charging structure for its research and other services, which will “enable the buy side to account for their fees to clients and comply with the new regulatory rules”.

“We are committed to providing insightful and thought-provoking research to our clients,” a statement on the firm’s website said. Steve Fine, the Chief Executive of fellow broker Peel Hunt, has stressed that his company is “completely focused” on implementing MiFID II.

“We have a project team that at any time can number 10% of our 200-person staff. So that’s a serious project and we are taking it seriously,” he said in a video on the firm’s website.

Elsewhere, the roll-out of the landmark legislation has already had a few hiccups, with the European Securities and Markets Authority (Esma) delaying the publication of a list of shares affected by the dark pool caps and retail investor site Stockopedia reporting share price feed issues.

Issues aside, with the rules getting stricter and MiFID II’s impact on the markets expected to be extensive, public businesses need to ask themselves if they are using digital media channels to their full potential, if they are engaging with the financial press and if they are up-to-scratch with their investor relations. There is now, undoubtedly, a new emphasis on how listed-companies communicate.

FCA’s explanation of MiFID II

The Markets in Financial Instruments Directive (MiFID II) is the framework of European Union (EU) legislation for:

  • investment intermediaries that provide services to clients around shares, bonds and units in collective investment schemes and derivatives (collectively known as ‘financial instruments’)
  • the organised trading of financial instruments

MiFID applied in the UK from November 2007, and was revised by MiFID II, which took effect in January 2018, to improve the functioning of financial markets in light of the financial crisis and to strengthen investor protection.  MiFID II extended requirements in a number of areas including:

  • New market structure requirements
  • New and extended requirements in relation to transparency
  • New rules on research and inducements
  • New product governance requirements for manufacturers and distributers of MIFID ‘products’
  • Introduction of a harmonised commodity position limits regime