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Jul 19, 2019

AMF to address Mifid II impact on small caps

French market regulator looking to improve coverage of small and mid-cap listed companies

French market securities regulator the Autorité des marchés financiers (AMF) is looking at how to improve coverage of small and mid-cap listed companies in France as part of a study on the impact of Mifid II on research.

The AMF’s investigation will be led by Jacqueline Eli-Namer, an AMF board member, and Thierry Giami, president of the French Society of Financial Analysts, and will ‘explore concrete ways of mobilizing the marketplace and thus improving the situation,’ the AMF says.

The regulator notes that Mifid II has made coverage a major issue, as a fall in research budgets has seen ‘a reduction in coverage of small and mid-cap stocks’. At the same time, the AMF says research sponsored by issuers is increasing, raising potential conflicts of interest.   

Since the introduction of Mifid II 18 months ago, the issue of research coverage has been a point of discussion, with some market participants expressing concern about Mifid II’s impact on the liquidity of small and mid-caps and the potential, in turn, to hit smaller company IPOs in what could be reduced investor appetite over the longer 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 small and mid-cap companies are covered by high-quality research,’ says the AMF in a statement.

Different studies and surveys have supported the assertion that research coverage and quality has decreased under Mifid II, but this perspective has not been universal

In some ways the AMF stands alone in its concerns about the European regulation’s rules on research, even calling for European authorities to review the requirements. But this puts it at loggerheads with the EU and other national financial regulators, such as the UK’s Financial Conduct Authority (FCA), with the latter earlier this year saying it is yet to see evidence of the negative impact on unbundling that is central to Mifid II.

‘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,’ commented FCA CEO Andrew Bailey in February.

‘Overall, we consider that the rules are already having a positive impact. We are seeing changes in behavior that are starting to deliver the intended effects: reducing conflicts of interest, improving accountability and producing cost savings for investors.’

In fact, the FCA has been keen to stress that Mifid II could save investors as much as £1 bn ($1.3 bn) on research.