MiFID-II Compliance — Key Questions the Global Securities Industry Needs to Answer

Published on 07 Sep, 2017

With the MiFID-II compliance deadline looming large, certain key concerns not only continue to plague the European securities and investment community, but may impact American firms as well. Here’s our view on the developments.

With the deadline of January 2018 not much far ahead, the subject of MiFID-II (Markets in Financial Instruments Directive) continues to command rapt attention of both asset managers as well as research providers, both in the US and Europe.

MiFID saw daylight in the European Union in 2007 to increase competition and consumer protection in the investment services sector. The revised guidelines articulated in the second variant of MiFID have further caused ripples across the investment industry.

See Also: MiFID II — Impact on the EU’s Research and Trading Desks

The MiFID-II guidelines, which mandatorily comes to force in the EU for implementation by January 2018, seem to have birthed quite a few concerns for the securities and investment community. Asset Managers and Research Providers are increasingly grappling with finding appropriate responses to the following key questions that MiFID-II guidelines left unanswered:

  • What should the pricing model for research be?
    Should it be priced on per-subscriber basis or should it be priced as a package for the entire firm? Should the package include only access to research reports, or should it allow face-time with research analysts as well? How should corporate access be charged – should it be assigned a separate cost?
  • How will brokers justify that they provided the ‘best execution’ of trades to their clients?
    What process should be maintained by brokers to justify ‘best execution’ of trades?
  • Which brokers should be empanelled to receive research ideas by buy-side firms?
    Should buy-side firms empanel specialist research firms with a niche in particular sectors, like Independent Research firms? Or, should they go with the few global brokerage houses with established coverage, which may not result in cost efficiencies? 

We are tracking the developments quite closely, and we realize that while there are a few companies that are trying to creatively address some of these concerns, many firms are still in the preparation mode and haven’t yet clearly laid out their plans of action.

According to media reports, a French regional bank seems to have introduced differential pricing packages, such as EUR 60,000 for a basic package that allows access to research reports and EUR 120,000 for premium level that offers access to research analysts as well. For a US-based bulge bracket investment bank, charges for equity research access vary from USD 10,000 a year to USD 80,000 a year. On the other hand, a Europe based bulge-bracket investment bank plans to charge EUR 30,000 per year for up to 10 users for its fixed-income and macro research. 

Evidently, there is no uniformity on the prices being quoted, and we expect the price for research to become more rationalised as the MiFID-II guidelines become applicable next year. 

Imminent Global Impact

Even though MiFID-II guidelines are not yet directly applicable to US firms and the SEC currently doesn’t allow brokers to receive payment for their research, we believe that many global brokerages are creating systems and processes to better deal with the MiFID-II guidelines. Simply because, it will be practically difficult for global firms to have a differential commission structure for different regions. We believe that the industry in the US is currently trending towards splitting the commissions into 2/3rd for execution and 1/3rd for research.

Nonetheless, we don’t see signs that the prevailing chaos will end anytime soon, especially among mid-tier firms across Europe and the US. Many such firms may be lagging behind the curve when compared to the large global investment banks that have already created massive teams to implement the MiFID-II guidelines.

The Research Industry’s Future

This disruption is likely to improve business prospects for independent or third-party research providers, who we expect may see growing demand for their research, at least in the near-term. In the long run, however, we believe sell-side research could emerge stronger as it will transition from being a cost centre to a profit centre. Further, benefits such as corporate access, events/ conferences, meetings with company management, and so on that are associated with the sell-side industry could limit the growth of independent research providers that cannot provide such benefits.

Additionally, we also believe that some asset managers are hoping to leverage the MiFID-II implementation in order to set up internal research teams that will, supposedly, have better control on their research quality and focus.

Watch this space for more insights. 


At Aranca, we have been supporting our clients – both buy-side and sell-side firms – in implementing research solutions in an efficient, cost-effective manner. We can support investment firms as well as brokerage houses and research providers to effectively address their MiFID concerns, and swiftly set up flexible research solutions.  

To know more, drop us a line at inquiry@aranca.com or visit Aranca.com