Fifty days of Mifid II: A look at what’s changed
Fifty days have passed since the introduction of Mifid II, which makes now a good time to compare its impact on the ground to some of the predictions and recommendations we made in IR Magazine’s most-read article of 2017.
The consequences fund managers mention most frequently about Mifid II implementation are meticulous recordkeeping, clear and uncompromising corporate access pricing policies, time and budget constraints and a generally higher level of caution when dealing with the sell side. In practice, this translates into far more selective time and budget allocations:
- All-inclusive, ‘gold’ or top-tier subscription packages combining unlimited access to research and corporate access services don’t have traction. The buy side expects clear and transparent pricing for each service in order to comply with the new regulation and to make sound budget allocation decisions. This in turn means many sell-side teams were told to ‘monetize every minute of their time’ with some dropping as much as 40 percent of their stock coverage to focus only on the largest and most liquid companies.
- Conferences come under the corporate access umbrella and should be adequately priced and paid for. The effect of the new regulation on conference schedules came earlier than we anticipated, with some companies reporting half-filled schedules at key conferences as early as January. Some decided to pull out, others came to us with requests to fill empty slots. Many of those companies were non-European, which proves again the international impact of Mifid II. We stand by our prediction that the conference landscape will change over the next 12 months with only the key staple conferences remaining.
- Non-deal roadshows: as one fund manager said, ‘I have no money for intermediaries.’ This sums up the buy-side approach to non-deal roadshows we are witnessing, with fund managers preferring to go direct to corporates. Some larger investment houses are even investing in their own in-house corporate access capabilities. This approach eliminates a potential inducement risk, the need for corporate access contracts with sell-side firms and extensive recordkeeping.
For corporates, these sell-side developments mean reduced visibility on the market, fewer channels to spread the message, more pressure on internal resources and, consequently, much stiffer competition for capital. This is interesting because it clearly splits issuers into two camps depending on the level of reliance on their brokers – not by market cap, as we’d initially anticipated.
Those IR teams that are well resourced, have strong internal positioning (and board support), have a clearly articulated investment case, run active independent corporate access programs and had already established direct engagement with the market report minimal impact from Mifid II. They have strong relationships with existing shareholders and clear prequalified targets for further market engagement. Their main concerns are about reducing their reliance on third-party consensus providers and they’ve started collating and publishing consensus themselves. Admittedly, they are a minority.
The majority of companies we see, including many large caps, rely heavily on their brokers in their communications with the market. Many have already been informed by smaller brokers that coverage of their stock will be dropped over the next few months. They are also the ones that ended up with half-empty conference schedules, and they have reported an increase in direct buy-side meeting requests for which there is no system in place to prioritize management time (many never had previously undertaken targeting independently).
Several corporates with a target list were offered a non-deal roadshow by their brokers and later reported being asked to cover logistical costs (flights, hotels, car rental, venue hire and meals), while brokers declined to schedule meetings with target funds they had no corporate access contracts with.
In summary, Mifid II is well and truly here, and in some areas its impact is being felt earlier than we had anticipated. We would reiterate our advice to IR teams: work smarter and use your budget wisely.
Key tips are:
- Take steps to reduce your dependence on brokers, taking back control over your investor engagement program
- Polish and condense your communication materials. No one has the time to go over 50 pages of IR presentation
- Be clear on investor targets, otherwise you’re wasting both your time and that of your management
- Take ownership of your consensus. If you don’t do it, the market will use what’s available, and inaccuracies are more difficult to correct
- Work closely with your remaining sell-side analysts. Understand their agenda and how they plan to cover your company going forward
- Adopt technology (selectively).
Marina Zakharova de Calero is CEO of Conduit Communications