Many commentators have become slightly blasé over the regulatory debate on MIFID (Markets in Financial Instruments Directive) as it has been underway in total for over 10 years. However, the Day of the Mifids is now less than 12 months away, with the 3 January 2018 implementation date for MIFID ll looking firm, and this promises to radically change the traditional relationship between brokers/analysts (sellside) and investors (buyside).
2017 is likely to see many financial firms facing a considerable workload as they look to become MIFID ll compliant.
There has already been much debate about the likelihood that the unbundling of charges made by the brokers to the buyside will result in less research and less analysts; this looks inevitable, especially given the margin squeeze on the buyside as their fees also come under pressure.
However, there is likely to be a knock-on effect for corporates. With less sellside analysts, it is likely that many investors will “go direct” to the corporate for information, increasing workloads for investor relations. And then there is a question around consensus and guidance, for example, how many sell side analysts are required to provide consensus and will companies have to provide more detailed guidance? Under the new MIFID ll rules, brokers will no longer be allowed to charge for corporate access, which may require corporates to get more involved directly or to engage a third party supplier to do this, at a cost. There is also a question-mark about how advisors, e.g. UK corporate broking, will service corporate clients in an “unbundled” world, when corporate broking has generally been viewed as a “loss leader” product.
In a world where communication is more integrated and more immediate, there is probably a requirement in any case for corporates to be increasing their focus on and resourcing of strategic communications; the follow-through from the MIFID ll changes is likely to add to that burden.