Unwinding rules on the cost of research should be part of a package of broader reforms
“You can’t get the **** back in the donkey,” bemoans one broking chief about the futility of trying to unwind EU laws that he claims have undermined the market for investment research in the UK. But the British government is still going to try, even if it finds that — as with the unfortunate donkey — the five year old Mifid II regulations have made too much of a mess to clear up easily.
Ministers are launching a review of investment research led by Hogan Lovells’ partner Rachel Kent, including on the effect of rules that separated payment for investment research from services tied to trading. This so-called unbundling was designed to boost competition, innovation and transparency by disclosing how much fund managers were being charged for research.
But ministers are concerned that there has been a decline in levels of investment research, making it harder to value companies and leaving London less attractive for businesses wanting to go public. The drop is one of the many reasons cited by brokers for the gap in valuations in the UK stock market versus Wall Street. Fund managers have had to stomach the newly unbundled cost of independent research, or try to hand them on to their own clients. The upshot has been less demand for research that drills down into the investment case for individual companies. European asset managers have cut research spending by three quarters from pre-Mifid II levels, according to research by Frost Consulting...
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