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Hardman & Co. September 2015 Monthly. Featured article - MiFID II – Why every investor and company needs to think about the implications

​For most people Tuesday, 3rd January 2017 is likely to be the first day back at work after a long weekend celebrating the New Year. In London it will probably be overcast with occasional showers whilst commuters will be suffering the effects of 'over-running engineering works'. But for participants in the London stock market it could be a momentous day, on a par with the Big Bang of October 1986 when fixed commission rates and the distinction between brokers and jobbers were swept away. For on 3rd January MiFID II comes into force which is likely to revolutionise the way in which equity research is paid for. Paying for research from commission that is bundled up with the cost of execution will become illegal, resulting in far less research being published, and perhaps none at all on most small and mid-cap stocks. History tells us that less research means lower trading volumes, wider spreads, higher share price volatility and lower company valuations. 

MiFID II, the Markets in Financial Instruments Directive part 2, is European Commission legislation that is designed to build on MiFID I to create harmonised regulation of financial markets with the aim of increasing competition and consumer protection. It is important to remember that the proposals are not yet set in stone and many in the investment banking and fund management communities are desperately trying to change the proposals, but the Commission seems well set on its views. September will bring more detail when the 'delegated acts' are published.