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Mifid II is hurting, but there is no way back

The damage done to mid-cap equities coverage by unbundling research is ever harder to ignore. It will not be easy to lower this self-imposed barrier to improved capital-markets access for fast-growing businesses in Europe.


One year on from the entry into force of Europe’s Markets in Financial Instruments Directive (Mifid II), the deleterious impact on equity research is now clearly apparent.

Mifid II’s squeeze on brokers’ revenues is industry-wide. Individual firms will always argue it is hurting rivals more, but it is clear that smaller houses specializing in stocks with a small and medium-sized market capitalization are suffering most.

“We are seeing the early signs of anxiety about coverage, liquidity provision, access to capital markets,” says David Mortlock, head of investment banking at Berenberg, one of Europe’s biggest and fastest-growing mid-cap equities houses.

This is especially disconcerting, as a central element of the EU’s financial policy is to boost funding for small and medium-sized enterprises (SMEs), and to mitigate European business’ reliance on bank loans.


Volatility in global markets this autumn has accentuated brokers’ Mifid woes. The bear market’s most acute effect on issuance has been on mid-caps, according to Mortlock, as weaker liquidity has seen many share prices half.

Signs of industry pressures and a consequent wave of consolidation are especially apparent in the UK, partly because of the added UK impact of Brexit on primary-market activity.

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