Analyst notes in the balance

The EU’s upcoming MiFID II rules brokerages and banks firms must soon start charging for research — and that may include the morning musings of analysts and strategists.

The authors risk having to either charge for the notes, restrict their circulation or render them anodyne.

“MiFID II does allow for what are called minor non-monetary benefits, but this only includes a few, very basic types of informational research,” said Hannah Meakin, a financial-services partner in London at law firm Norton Rose Fulbright.

“Certainly, anything that can be described as a recommendation of an investment strategy, or a substantiated opinion or substantial analysis, I think you’d assume is in the investment-research category,” she said.

The updated Markets in Financial Instruments Directive II is an overhaul of the way markets are overseen that runs to more than 1,000 pages and is huge in scope.

When it comes into force in January, it will impact trading in everything from stocks and bonds to derivatives and commodities as it seeks to increase investor protection and transparency.

Morning notes will have to account for MiFID II’s requirement that anything “substantive” — that is, well thought-out and potentially useful to readers — should be paid for to avoid being considered an inducement.

“Charging under MiFID is a real, real problem,” Anthony Peters at Sol Capital said. “Isn’t the point of reading research to collect the most diverse range of views on a chosen subject and, hopefully, a few views on some un-chosen subjects too?”

In terms of how much banks might charge, a two-tier pricing model is taking shape, according to Neil Shah of Edison Investment Research. This might offer the full research services of a major bank — including meetings with analysts and conference invitations — for some very high sum, but allow access to the research portal alone for $10,000 (€8,460) to $20,000 a year, Mr Shah said. Would non-subscribers get to see morning notes for free?

“Not if it’s a note with anything worth saying,” said Mr Shah. “Anything substantive and you’ll have to pay. Substantive is anything that gives you an indication of an investment strategy.”

While notes are useful, whether they’d be worth paying for in isolation is a different matter, said David Tawil, co-founder of hedge fund Maglan Capital in New York.


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