European Commission confirms changes to MiFID II in COVID-19 relief plan

Research unbundling and best execution reporting requirements are at the heart of the European Commission’s COVID-19 relief plan.

The European Commission has published its amendments to MiFID II research rules and best execution reporting to offer relief to participants in the wake of the COVID-19 pandemic.

Under the changes, investors will be permitted to bundle payments for research and execution provided that the research is on issuers with a market cap of less than €1 billion over 36 months.

Amendments to fixed income research, initially proposed by the Commission, were not included in the recently published directive.

The amendments to the requirements which fall under the MiFID II regulation come as part of a relief package from Brussels, designed to advance Europe’s recovery following the COVID-19 pandemic.

The Commission confirmed plans to make the amendments in July last year following the first peak in COVID-19 cases, with the recent statement bringing those intentions into law.

“In the immediate aftermath of the COVID-19 pandemic, issuers, and in particular small and middle-capitalisation companies, need to be supported by strong capital markets. Research on small and middle-capitalisation issuers is essential to help issuers to connect with investors,” said the Commission.

“That research increases the visibility of issuers and thus ensures a sufficient level of investment and liquidity. Investment firms should be allowed to pay jointly for the provision of research and for the provision of execution services provided certain conditions are met.” 

MiFID II’s rules on research requiring a clear separation on payments for research and execution have been controversial since they were introduced in 2018. Critics of the rules have argued that unbundling has had limited impact on transparency, reduced research coverage and quality, and dented liquidity in certain stocks.

National regulators across Europe hold conflicting views on the impact unbundling has had on the institutional research marketplace. France’s Autorité des Marchés Financiers (AMF) and the French Treasury strongly supported the changes to the research rules, while the European Securities and Markets Authority (ESMA) was less in favour of rolling back the unbundling requirements.

“These changes were the best possible compromise from the divergent views between some member states and ESMA on SME research coverage following implementation of MiFID II,” Pedro Fernandes, CEO and founder of Paris-based research management platform provider ResearchPool, told The TRADE.

“Given the limit scope of these changes, it is difficult to see Investors applying any changes to their research policy in terms of payments and usage.”

Elsewhere in the published amendments to MiFID II, the Commission has temporarily suspended best execution reporting requirements, labelling them as rarely read and too burdensome for market participants. 

“The overall aim of those amendments should therefore be to remove unnecessary red tape and introduce carefully calibrated measures that are deemed effective in order to mitigate the economic turmoil,” said the Commission.