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Aug 09, 2019

Coming to America: US instigates major study into Mifid II

The SEC will study the provision of investment research for small issuers

In the latest impact of Mifid II coming to America, a major investigation concentrating on research for small issuers has been successfully instigated by US politicians, on the back of the US coming closer to the European regulation.

The US lower House of Congress, the House of Representatives, has passed a bipartisan bill requiring the SEC to study the provision of investment research into small issuers. The bill has been sent to the upper House of Congress, the Senate.

The bill, entitled ‘Improving Investment Research for Small and Emerging Issuers Act’ will compel the SEC to explore a range of issues, including: demand for research by institutional and retail investors, the availability of research and the types of providers and costs of such research.

The study will also consider the effects of concentration and consolidation on fund managers, including the size of fund managers and how this relates to the demand for research.

But with a big nod to Mifid II, the study will examine the impact of different payment mechanisms on research, including hard dollar payments from clients, payments from commission income directed by clients – known as soft dollars in the US – or payments from the issuer.

The study will have a big regulatory focus, looking at the impact of the SEC’s rules and Mifid II. It needs to be rubber-stamped by the Senate – then the SEC will have six months to undertake the study before submitting a report to Congress with conclusions and recommendations.

The study coincides with the SEC’s invitation to submit comment letters on the implementation of Mifid II research rules. The SEC has invited all respective players to submit comment letters on Mifid II related to the regulatory and other challenges to US firms and on research provision.

Debates surrounding reductions in research coverage for small and medium-sized companies have been one of the issues surrounding Mifid II’s rules.

In a speech to the SEC Investor Advisory Committee at the end of March, Jay Clayton, SEC chairman, revealed he was ‘concerned that the broad availability of research may be reduced as a result of Mifid II’.

IR Magazine has already covered how Mifid II is set to become a global standard via a US push so it will be interesting to see which direction the study takes once published. In short, it is difficult to see how Mifid II can be stopped from making greater moves into the US financial system – in part, because it is being driven by leading US asset managers. 

IR Magazine has followed the issue closely and reported on the number of trends emerging as a result of the European regulation.