It’s a good time to take stock of Mifid II – almost two years since its launch, we’re beginning to get a clearer picture of the changes it has prompted.
‘The prophecies of Mifid II bringing doom and disaster have proven to be untrue,’ Michael Hufton, managing director of ingage, tells IR Magazine. ‘Companies are not finding themselves unable to get coverage. Investors are not faced with a dearth of research.’
Instead, Hufton says, there has been ‘a material change in how markets operate, but one that takes hold progressively over time – not a cliff edge. Increased transparency has led to greater awareness and hence a much greater focus on cost and value.
’This should come as no surprise, because it is the central tenet of Mifid II and very much the rationale for its introduction. ‘I see this as unequivocally a good thing, for both the end-investor and the integrity of the market as a whole,’ notes Hufton.
Moreover, Mifid II is clearly going global as a de facto best practice standard. This is driven by two key areas: firstly, global companies have sought to comply with Mifid II across all of their offices in order to avoid having different regulatory rules applying to different parts of the world; and secondly, because sophisticated asset owners are requiring it.
‘They’ve seen the cost reductions that full unbundling can bring and they want the benefit, too,’ asserts Hufton, who recognizes an influence from regulators. ‘There is a focus from regulators on steering the market toward companies making the right decisions themselves, rather than forcing them to do so via enforcement action.’
This strategy appears to be working, he adds: ‘People are changing. Because they see better solutions, they see the writing on the wall, they don’t want to be the last to move and be caught out. Corporates and investors are doing more themselves, directly, and they like the results.’
The big question mark is over the SEC and how it deals with the Mifid II challenge in the US over the long term, notwithstanding its no-action letters on the issue. Council of Institutional Investors general counsel Jeff Mahoney tells IR Magazine he wants the SEC to bring the US in line with Mifid II.
‘We would like the SEC to take action that would ultimately lead to all research providers accepting ‘hard dollar’ payments from their customers,’ he says.
‘In the near term, we believe the SEC should revise guidance under Section 28(e) of the Securities Exchange Act of 1934 to require investment managers and advisers to disclose amounts paid for research from client assets, and have procedures in place to ensure the research benefits the asset owners who pay for it.’
UK regulator the Financial Conduct Authority (FCA) has been an important body promoting the benefits of Mifid II, addressing the changes to corporate access in its Mifid II Thematic Review, which was published in September.
Based on their study of how the market developed between July 2018 and March 2019, the FCA report authors write: ‘We saw a general increase in the proportion of corporate access meetings arranged directly between an issuer and an asset manager without broker intermediation. Corporate issuers also told us they have taken more ‘ownership’ of their investor engagement. Many corporate issuers have increased the resources they provide to investor relations, and told us the quality of corporate access engagement has improved. We welcome these developments.
’This is an obvious area that needs covering, given that IR Magazine research finds half of IR professionals saying they have a negative view of the impact of Mifid II – especially with regard to increased difficulty of filling roadshow schedules.
So while Mifid II is progressing and shaping the market, it feels as if there are plenty of developments to come.
This article was published in the Winter 2019 issue of IR Magazine.