Views on the integrity of global capital markets
20 December 2017

MiFID II: A New Paradigm for Investment Management

The revised Markets in Financial Instruments Directive (MiFID II), which comes into effect on 3 January 2018, introduces a sweeping overhaul of European financial markets, affecting market structures and the trading of financial instruments. In addition, it prescribes conduct-of-business standards for firms providing investment products and services, including provisions governing payment for investment research.

The traditional research payment model is a soft-dollar arrangement in which firms pay brokers a bundled commission to receive execution services alongside research. Accordingly, clients effectively incur the cost of research. In contrast, MiFID II introduces an explicit payment model (sometimes referred to as a hard-dollar arrangement) in which research must be priced and provided separately from execution services. Asset management firms will have the option to either absorb the cost of research internally, or to charge clients via a separately funded research payment account.

CFA Institute surveyed European investment professionals to better understand the state of the market for investment research ahead of the introduction of MiFID II. The results are available in MiFID II: A New Paradigm for Investment Research. Here, report author Rhodri Preece, CFA,  discusses its key findings.

See: MiFID II Video

It may be several months or years before the full effects of MiFID II crystalize . The competitiveness of firms may depend on how successfully they adapt their research business models. Although the transition to the new paradigm may be disruptive, it has the potential to deliver a more efficient market in the long run.

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Photo Credit: ©CFA Institute 2017

About the Author(s)
Rhodri Preece, CFA

Rhodri Preece, CFA, is head of capital markets policy for the Europe, Middle East, and Africa (EMEA) region at CFA Institute. He is responsible for development and oversight of capital markets activities in the EMEA region, including content development, policy engagement and outreach. Rhodri formerly served as director of capital markets policy, focusing on issues related to primary and secondary market structures. He was named one of the “40 Under 40 Rising Stars of Trading and Technology” by Financial News.

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