As we approach 3rd January 2018 and the coming into force of the MiFID II legislation which changes the landscape for research, we are beginning to see some of the practical implications and complications. Brokers are in the early stages of working out how to structure charging for research, asset managers have already begun cutting their brokers’ lists and a model code of conduct for Research Payment Accounts for institutions has been published.
Most of the discussions on MiFID II, and pretty well all of the media coverage, have focused on its impact on the volume of research. There is clearly going to be a substantial change, with far less research published, and most, if not all companies with market capitalisations below £600m, finding only their house broker deems it commercial to write about them.
There has been far less consideration of MiFID II’s effect on the distribution of research, which will be equally seismic. Today, to all intents and purposes, all institutional brokers have the same client and distribution list. From January 2018, institutions will dramatically cut the number of brokers with which they engage. The strength of a broker’s institutional network is going to become a key point of differentiation.