This analysis is by Bloomberg Intelligence analysts Sarah Jane Mahmud and Alison Williams. It appeared first on the Bloomberg Terminal.
Small- and medium-sized companies risk reduced research coverage, which may then have a negative impact on liquidity in this market. Investor relations across the board will feel the pressure, and with fewer analysts covering fewer companies, they’ll need to scale up their activities.
Threat to small- and mid-cap liquidity
Liquidity may wane among small- and medium-sized companies as banks scale back their research services in response to MiFID II pressure. With fewer analysts, there will be less research, and banks could cut coverage of less-popular companies. This may prove challenging for smaller banks — these companies are also their key corporate clients. Regulators may make some changes to the rule after reviewing its impact on the research coverage of small-and medium-sized companies, scheduled for 1Q19.
Research quality under the microscope
The price and underlying value of research is subject to increasingly close scrutiny as MiFID II nears. In a priced environment, asset managers are likely to be more selective about what they buy, opting for tailored coverage from a select number of banks and independent providers. Most managers may opt for tiered pricing, with different levels of access to research at varying prices. Another option is research a la carte, with set pricing for individual products by analyst or industry.
Investor relations likely to feel the pressure
Companies may need to commit greater resources to investor relations as MiFID II will likely lead to a contraction in sell-side coverage and a more concentrated buy-side. As banks scale back, companies will need to complete for the attention of a smaller analyst pool, liaise with more independents and market direct to investors. They’ll need to make it easier to follow the company. This could involve improving their websites, and presentation material, and facilitating corporate access.