Much has been written about MiFID II, the EU’s revamped Markets in Financial Instruments Directive, which comes into effect on January 3rd 2018. Andrew Rigby takes a look at the potential implications for digital managers.
MiFID II is a package – a very long one at almost 1.5 million paragraphs – of EU legislation that aims to bring greater transparency to financial markets. Ultimately the EU wants to make it easier for investors to see what they are paying middle-men (brokers and asset managers) for: research on and meetings with companies and their management teams in particular. The costs for these will have to be unbundled from charges for buying and selling shares, which has not been the case to date.
So while the bulk of the impact will be felt by financial institutions across the world – because any transaction that touches the EU is affected – there are likely to be implications for IR and communications teams.
If research and corporate access now has to be paid for in a more transparent way, it is reasonable to assume that there will be much less of both from analysts in the post-MIFID II landscape. And what is produced and paid for, will have to be of high quality. IR teams will also need to work harder to communicate the company’s investment case directly to investors: produce more information themselves, and arrange and deliver more meetings.
It seems to us that this is where the corporate website can help, in two ways.
It can fill the gap created by the decrease in freely available research, by providing free access to company information for investors, journalists and other audiences.
And it can provide more detailed information for those producing paid-for research. This might be especially useful as the effects of MiFID II begin to become apparent. IR teams may need to scale up to deal with the increased workload, but this may take time to achieve. In the meantime, the website can be used to deliver information at scale, so it is worth talking to the IR team to see how the company website can help them.
More hard financial data might be useful, but so will a clear statement of the investment case, and ways to make senior management more accessible may be important – videos and webcasts. Our recently published ‘Explain Yourself’ index may be useful here. It highlights some of the companies which are best at telling their stories and presenting their leadership teams.
One particular aspect worth considering will be consensus estimates. With less research, it is not clear how the likes of Bloomberg will compile consensus, and consensus based on algorithms or crowd sourcing is still in its infancy. Once again, the onus may be on companies to manage and distribute consensus – so the website comes into its own. Barclays has a good example of a consensus estimates page.
Finally, with IR teams potentially needing to target investors more directly rather than through brokers, website measurement may assume greater significance to IROs. Building a picture of who is coming to the website, from where, and what they are looking for, could be very helpful…even if other pieces of EU regulation, both existing and future, limit how forensic you can be. But that is a topic for an upcoming blog…
For those who would like more background on MiFID II, we have prepared a short Q&A.