European fund managers have backed plans from the European Commission to roll back the MIFID II requirement to pay for fixed income and smaller companies research.
In efforts to boost Europe’s economic recovery and ease trading conditions, the European Commission proposed on Friday (24 July) from next year a series of regulatory changes, including removing the requirement to unbundle the cost of research from trading costs with the sell side for certain assets.
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The commission said that MIFID II, which has led to the smaller companies research market all but collapsing, should no longer cover companies with an equity market capitalisation of less than €1bn from the unbundling requirement, according to the FT.
It argued that the costs for producing fixed income and small cap research were never based on commission “so it does not pose a conflict of interest between brokerage and research”.
The German Investment Funds Association (GIFA) backed the exemption for fixed income, explaining that “asset managers pay currently twice for this type of research: once within the spread and secondly directly”.
GIDA added that the €1bn threshold for equities seemed “too low” as its figures indicate that the restriction would apply to just half of the 70 companies in Germany’s small-cap stock index.
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Steve Kelly of European research provider Euro IRP said it was a return to “pre-2018” market practices for fixed-income trading.
He added: “It would not make sense to inject €750bn into the economy, only to see that money aimed at [smaller companies] being hampered by excessive regulation.”