Europe Looks to Loosen ‘Overly Burdensome’ Rules on Sell-Side Research

New amendments to MiFID would ease restrictions related to fixed income and small- and mid-cap companies.

Geert Vanden Wijngaert/Bloomberg

Geert Vanden Wijngaert/Bloomberg

Three years after Europe’s MiFID II went into effect, the sell side may get some relief from the landmark regulation, which forced banks to unbundle investment research from trading services.

The executive arm of the European Union on Friday proposed relaxing some rules as part of a larger package to support the region’s economic recovery from the coronavirus pandemic.

According to the announcement from the European Commission, the “targeted amendments” are intended to alleviate requirements “that were already identified… as being overly burdensome or hindering the development of European markets.” These include rules requiring investors to pay separately for research on bonds and small- and mid-cap companies, rather than receiving the research as part of a package deal from their brokers.

Since MiFID II went live at the start of 2018, the regulation has been blamed for a decline in sell-side research coverage of European companies — especially the smaller, lesser known firms. A 2019 study found that banks stopped covering hundreds of European companies after the regulation was implemented, with 334 firms losing coverage completely.

[II Deep Dive: After Years of Talk, MiFID II Is Live. Here’s How It’s Already Changing the Research Business.]


The European Commission’s proposed changes to MiFID II would allow for the re-bundling of research and trading pertaining to small and mid-cap stocks and fixed income, with the intent of encouraging investment in these securities. According to press materials accompanying the announcement, small- and mid-cap companies would be defined as any firms with a market capitalization up to €1 billion ($1.15 billion).

“The exceptional circumstances resulting from the coronavirus pandemic have instilled a sense of urgency into the debate on investment analysts’ research,” the European Commission said. “Increasing the visibility of European companies, in particular [small-to-medium enterprises], to investors will promote more investment for the economic recovery.”

The commission said Friday that the next steps would be for the European Parliament and European Council to agree on the proposal, after which the MiFID II amendments would need to become national laws. The changes could go into effect early next year, according to Bloomberg, which cited an official familiar with the plans.