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Sep 23, 2019

IROs let off steam about Mifid II

New research finds half of IROs have negative impression of regulation’s impact

IROs used a recent survey about Mifid II to let off some steam about the European regulation. Half of IR professionals say they have a negative view of the impact of Mifid II, while just 14 percent take a positive view, according to a new research report from IR Magazine.

The research polled 79 IROs on their feelings about Mifid II and its impact on their IR programs. The survey took place in May this year, 16 months after the implementation of the regulation, which unbundled payments for research and corporate access from trading commissions.

In the survey, respondents were asked to name the biggest challenges arising from Mifid II. Among the responses, many focus on the increased difficulty of filling roadshow schedules when working with brokers. 

‘Some investors don’t work with certain banks, which means it’s difficult to cover them on roadshows organized by banks,’ says an IRO from a Dutch large-cap company. ‘We therefore work only with the ‘bigger’ banks with good analysts, knowing that their research is most often used.’

Survey respondents from outside Europe say they are experiencing similar challenges. ‘As a mid-cap, we are having to spend time and money on things we used to have brokers do better and for free,’ says an IRO from an Australian real estate company. ‘Our investor exposure has been less because we do not yet have the right people in-house. Cost up, effectiveness down – Mifid is a major negative’

The research also finds that around a third of IROs have changed their approach to corporate access since the introduction of Mifid II. One of the most common changes, according to comments from the respondents, is an increase in direct contact with the buy side. ‘We are looking more closely at company or third-party sponsored non-deal roadshows,’ says one respondent, an IRO from a large-cap US company in the consumer discretionary sector.

Notably, the findings don’t change much depending on whether not a company is based in Europe. In total, 32 percent of Europe-based respondents say they are approaching corporate access differently since the arrival of Mifid II, compared with 35 percent of respondents globally. 

This underlines the fact that the changes affecting the corporate access industry, such as the move toward more direct contact between companies and investors, are not confined to Europe or driven solely by European legislation.  

Implemented in January 2018, Mifid II banned investors from paying for research and corporate access out of trading commissions. In response, investment firms have started to pay for these services out of their own P&L and now carefully scrutinize what research and corporate access they will accept. 

The full findings of the survey can be found in the IR Magazine research report, Mifid II, which is available to IR Intel and IR Advanced subscribers. Click here to find out more about the research report.