Views on improving 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 is Head of Industry Research for CFA Institute. He is responsible for building and maintaining the global thought leadership function at CFA Institute, including leading the planning, coordination, and creation of research content across CFA Institute research platforms, including the Financial Analysts Journal, the CFA Institute Research Foundation, and the Future of Finance initiative. Rhodri formerly served as head of capital markets policy EMEA at CFA Institute, where he was responsible for leading capital markets policy activities in the Europe, Middle East, and Africa region, including content development and policy engagement.

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