Mid-size companies are the most badly affected by the MiFID II unbundling rules

Mifid ii

Buy, sell or hold? Quoted companies get their say on broker research

We recently commented on the FCA’s findings as regards the unbundling of research costs under MiFID II regulations. Readers will recall that under these rules investment managers have to disclose how much they specifically pay for broker research and in many cases justify the added value it creates if any.

Whilst sell-side stockbrokers and investment banks have had to come up with a pricing formula that meets their client’s needs and also covered the cost of running and maintaining a research department.

The FCA found that whilst the pricing formula was still a work in progress the investment management firms, they surveyed, were by and large still receiving the research they required.

However, we have just seen the release of preliminary data from the respected Citigate Dewe Robinson annual investor relations survey, which has now been running for the last eleven years.


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One of the key areas that the survey looks at is the depth and availability of research on quoted companies, and this year’s findings appear to be in stark contrast to the FCAs recent comments.

Some 52% of the UK companies that participated in the IR survey reported a drop in the number of analysts covering their shares and 38% reported a drop in the quality of that research, whilst the European companies in the survey reported a 39% and  20% drop respectively, suggesting that this a Europe wide phenomenon.

What is the Dewe Robinson annual investor relations survey?

The survey canvased 479 investor relations department across Europe and the UK and Citigate Dewe Robinson believe that small and mid-size companies are the most badly affected by the MiFID II unbundling rules, that ties in with anecdotal evidence we have seen from fund managers in those sectors, who have bemoaned a scarcity of research in smaller companies.

A lack of research on a company may mean it is overlooked or in the worst case cut off from potential institutional investors, who may have coverage thresholds to meet before they can invest. That could inhibit the growth of small caps and their ability to raise money through the equity markets.

However, there is some good news for investors and CFD traders alike from the survey.
Investor relations officers and departments are not sitting on their hands, they recognise the situation and are looking to pursue other ways to promote their own investment case.

More than 50% of the small and mid-cap respondents said they plan to increase their use of roadshows whilst 46% said they would utilise capital markets days.

Some 42% said they would make more use of prime broker hosted conferences, which seem to be becoming an increasingly popular platform through which companies can meet potential investors and existing shareholders.

Other initiatives include improved annual reports and putting more information on websites to help get those stories across. Of course, self-promoted materials can’t easily take the place of a critical and independent eye being cast over the company by a research analyst, but it should at least keep small and mid-size companies from dropping off the radar completely.

The full survey and findings will be published later in October.

Like many well-intentioned ideas, the MiFID II unbundling regulations have had unintended consequences. We are all for competition and transparency where research costs are concerned, but we don’t believe that this should come at the expense of the small and mid-cap sectors, after all from little acorns mighty oaks grow.

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