The UK’s Financial Conduct Authority's (FCA) review of the impact on research is too early and too late.
It has launched a review into the application of the EU’s Markets in Financial Instruments Directive (Mifid II) regulations and the unbundling of research costs. This comes nearly six months after Mifid II came into effect at the beginning of this year but long before its impact on the market becomes anything close to clear.
RSRCHXchange’s findings in its latest buy-side survey shed some light on investor attitudes to the changes. These are broadly that it is positive for end investors, negative for research providers and mixed for asset managers themselves.
With 63% of portfolio managers reporting that they are taking fewer analyst meetings, however, things look very bleak indeed for some research providers. Such firms will have to be either very large or very small and niche to survive, which leaves a yawning gap in between where the inevitable consolidation and closure will come.
Smaller asset managers are, as predicted, at the sharp end of the changes. They report reduced access to research compared with their larger competitors and are among the biggest spenders on research aggregators such as RSRCHXchange itself. Things also look pretty bleak for coverage of smaller corporates. Around 82% of respondents to the survey believed that Mifid II will result in reduced coverage for small and mid-cap stocks.
Asset managers are fully aware that the current low levels of pricing are unlikely to last and the market will eventually find a level that is a lot higher than it is now. So smaller players will be hit even harder. The fact that the FCA is starting to ask questions is a good thing, but it does feel a little like shutting the stable door after the horse has bolted.