The Impact of MiFID II Rules on SME and Fixed Income Investment Research

Study available here.

The MiFID II rules on unbundling payments for research and execution have brought major changes to the European market for investment research. This study for the European Commission combines statistical analysis, surveys, interviews and legal analysis to shed light on how MiFID II has affected the research market, particularly for Small and Medium Enterprise (SME) and corporate bond issuers.

The study shows that MiFID II reduced research budgets and lowered equity research prices particularly for larger investment firms. Research coverage and volumes for European equities have trended down for several years. MiFID II coincided with an increase in this decline for European SMEs although some of the decline may reflect cyclical effects. Research quality has not been systematically affected by the introduction of MiFID II unbundling.

An area in which MiFID II seems to have produced structural shifts in behaviour is Fixed Income (FI) where published research volumes are lower and some providers have moved towards a strategy-analyst approach and reduced their use of publishing researchers. Also, the Investor Relations (IR) activities of issuers have been affected by MiFID II as the traditional role of brokers in facilitating contacts has been impeded, particularly in the case of contacts with foreign investors.

This study examines the current state of SME-related investment research across European Union (EU) countries and the effect on such research of MiFID II. An important question for future study is what policy measures could be taken to increase SME investment research levels and reduce the large imbalances across countries and regions.