News and Views

MiFID II: A brief summary

Market in Financial Instruments Directive (“MiFID”) became law in the UK in November 2007. More recently, the European Commission reviewed the MiFID framework and concluded that change was needed. This was to address issues identified as a result of the 2008 financial crisis, market developments and lessons learned from experience of how MiFID I had operated so far. MiFID II came into effect on 3 January 2018.

Key MiFID II objectives

 – strengthen investor protection;

 – enhance transparency; 

 – reduce the risks of a disorderly market;

 – reduce systematic risks, and;

 – increase the efficiency of financial markets and reduce unnecessary costs for participants

So what does this mean in reality?

Whilst much of MiFID II affects processes, procedures and ways of working across the financial markets, certain elements of the legislation mean that quoted companies will be impacted directly, particularly surrounding the availability of research.

Key research rules to consider as a quoted company under MiFID II

The generation of revenue by brokers via trading commissions to pay for research is strictly prohibited under MiFID II – investment firms cannot receive and brokers cannot send research unless it has been paid for directly, otherwise it would be deemed an inducement to attract trading commission. As such, broker research must be independently paid for by i) investment firms or in certain circumstances the funds they manage via a direct payment or ii) by the company if it can be specifically categorised as corporate/issuer sponsored research, which is available to any investment firm wishing to receive it and disclosed appropriately.

Further information surrounding corporate/issuer sponsored research within the new regulations can be found in:

1) Commission Delegated Directive (EU) 2017/593 supplementing MiFID II Article 12 (3) (b);
2) The Financial Conduct Authority’s  (“FCA”) Conduct of Business Sourcebook COBS 2.3A.19 R (5) (b);and
3) ESMA Questions and Answers On MiFID II and MiFIR investor protection and intermediaries topics, 18 December 2017, Chapter 7.

Our approach to MiFID

Our 80+ corporate client base and our disciplined allocation of resources allow us to continue with no fundamental change to our business model in the new MiFID II world. We have maintained our current balance, with c.90% of the research we produce classified as corporate/issuer  sponsored and c.10% non-sponsored research, the latter being paid for by a broad range of fund managers for which we continue to look for new ideas. Our corporate sponsored research for those companies with which we are engaged ensures an informed investment opinion is available to any investment firm in the wider market that wishes to receive it, without it being classified as an inducement. Under MiFID II we remain committed to providing an excellent service to both our corporate and institutional clients.

To find out more please contact us directly:

John Cummins, Managing Director, Institutional Research

T: +44 (0)20 7220 1755

E: john.cummins@whirelandcb.com

External references

Commission Delegated Directive (EU) 2017/593 – article 12(3)

ESMA Q&A

FCA Handbook Conduct of Business Sourcebook – COBS 2.3A.19 R

QCA press release – Growth companies applaud FCA provisions on investment research