In the investment world, before MiFID II, essentially every institution talked to every broker, and the whole, professional market could see every research note and the forecasts in detail. This was the ‘Age of Consensus’. Everyone had the same information (well, everyone except retail investors), and this transparency helped share price formation and liquidity.
Today is very different. Company managements may not appreciate that institutions have typically halved their broker list. As management, you may feel comfortable that you have, for example, eight analysts writing about you – you should feel less so if many of them are not visible to anyone! This article shows how transparency in forecasts has disappeared. Our work shows that, for a typical company with eight analysts, only four forecasts are visible. This demonstrates the risk of confusing coverage with distribution.
Most of what has been written about the new environment for investment research has centred on the number of analysts per stock. Indeed, Hardman & Co has been at the forefront of exploring this impact and any consequent effect on liquidity with our own MiFID II Monitor. But the more crushing, and far less appreciated, outcome has been on the broker relationship with institutional clients. Many brokers have seen their reach go from universal to ‘tight’.