French regulator seeks ways to improve small and mid-cap coverage under MiFID II

The AMF has launched a study into the impact of unbundling in order to improve coverage for small- and mid-cap stocks.

France’s Autorité des Marchés Financiers (AMF) is seeking ways of improving coverage of small- and mid-cap listed companies as part of a study on the impact of MiFID II on research.

Jacqueline Eli-Namer, an AMF Board member, and Thierry Giami, president of the French Society of Financial Analysts, will lead the AMF’s investigation and “explore concrete ways of mobilising the marketplace and thus improving the situation,” the AMF said.

The AMF added that MiFID II has brought the issue of coverage more sharply into focus, as reduced research budgets and prices has seen a major pullback in coverage of small- and mid-cap stocks. At the same time, the AMF said research sponsored by issuers is increasing, raising potential conflicts of interest.   

Market participants have expressed concerns about the trend since MiFID II was introduced due to its impact on liquidity in small- mid-caps, and a potential hit to smaller company initial public offerings (IPOs) in light of reduced investor appetite in the long-term.

“The French stock market’s objective is to promote the listing of small- and mid-caps, and while France has a broad base of financial analysts, it is desirable to explore initiatives that could be taken to ensure that small- and mid-cap companies are covered by high-quality research,” the AMF said.

Various studies and surveys have supported the notion that research coverage and quality has declined under MiFID II’s unbundling requirements, which have forced investment firms to separate payments for execution and research in order to bring about more transparency around costs.

The AMF has been upfront about its concerns about the regulation’s rules on research, even calling for European authorities to review the requirements, but the UK’s Financial Conduct Authority (FCA) said earlier this year that it is yet to evidence of the negative impact of unbundling.

“Since implementation, we have watched for changes in coverage of smaller companies. I think the evidence is, so far, inconclusive, and does not suggest the dramatically negative impact that some predicted,” FCA chief, Andrew Bailey said at about the issue.

“Overall, we consider that the rules are already having a positive impact. We are seeing changes in behaviour which are starting to deliver the intended effects – reducing conflicts of interest, improving accountability and producing cost savings for investors.”