One hundred days is a seminal moment in politics (particularly in America), setting the scene of what’s to come. Although 100 days in the development of MiFID II doesn’t hold the same gravitas, it’s still a prime time to take note and reflect on its initial implications. And while debates continue around what MiFID II means for our future, we’re already seeing a few significant developments take shape, even at this early stage.
So far, the most crucial change stemming from the MiFID II regulation is the separation of investment research payments from dealing commissions. Forcing brokers to price research and charge for their services independently, regulators are hoping to increase transparency and minimize conflicts of interest. And with the global precedent that MiFID II sets, it’s expected that the changes will be adopted by brokers and investors worldwide.
Assessing the situation from a 100-day perspective, there’s no doubt that MiFID II is starting to change the behaviour of IR professionals and investors, while organizations internalize and reconcile the consequences. According to IR Magazine, one of MiFID II’s most critical trends is the dramatic increase in direct meeting requests for corporate IROs. One FTSE company said they now organize 50 percent of their investor meetings themselves. This represents a significant shift.
The real impact is on the IR professional who will become more of an ‘in-house broker.’ The new role will also likely require additional budget to spend on resources and technology to take on the greater workload. While this may not effect IR teams with strong internal positioning and board support, most IR professionals will have to adapt to the new paradigm quickly and rally their case early for support. There’s also a clear shift in approach among investors. Lead players like Fidelity, BlackRock, Lazard, T Rowe Price and Wellington have all appointed internal corporate access teams. This says a great deal about the intent of the investor community going forward.
As well, the impact on conference programs has begun. Under the ‘corporate access’ umbrella, conferences must now all be satisfactorily priced and purchased. Since the implementation of MiFID II in January, companies are already reporting half-filled schedules at key conferences. This is a good indication that the conference landscape will change dramatically over the next 12 months, unfortunately in a rapid downward spiral.
Even more critical, it appears that the seeds of MiFID II are positioned to grow as a global standard. A good case in point is BlackRock, which publicly stated its intention to roll out a global solution to MiFID II across its business. The rationale for this move is not surprising. It’s complicated to run a global business in cadence with multiple sets of rules. We’ll likely see large firms begin to operate according to a new cross-organizational gold standard that’s fuelled by MiFID II.
While its full impact is still in its infancy, it’s clear that MiFID II has certainly arrived. If IROs have taken a ‘wait and see approach’, it’s essential to take heed of these early changes. IR teams need to work smarter, use the budget available wisely and put a strong case to the board more vociferously – educating senior management about Mifid II’s key implications and the vital role the IRO plays in this new environment. With every Mifid II challenge comes an opportunity, bringing the IR industry from behind the scenes and onto the global centre stage.