Newspaper article The Evening Standard (London, England)

New Broking Shake-Up Has Unintended Consequences

Newspaper article The Evening Standard (London, England)

New Broking Shake-Up Has Unintended Consequences

Article excerpt

Byline: NickGoodway

THE broking world is currently facing the largest shake-up since Big Bang changed the face of the City forever in 1986. Changes, which could come in as early as this autumn, may see a massive reduction in the amount of research of quoted companies available to investors and a corresponding fall in the trading of shares, particularly in medium and small companies that lack sufficient following by analysts.

MiFID II is the catchy title for this piece of European legislation, a followup to 2007's first Markets in Financial Instruments Directive. It is a lengthy and complex work ranging across many subjects. But the part that matters to the London stock market is being drawn up by the European Securities and Markets Authority and covers how fund managers pay for research.

As long ago as 2001, Paul Myners led a review for HM Treasury that denounced UK brokers' lack of transparency on commissions. Myners said that because the costs of research and execution of share trades were bundled together in a single commission, the system was expensive and uncompetitive.

Fourteen years on, this is being tackled. Not for the first time, the Financial Conduct Authority appears to be taking a tougher stance than most of its European counterparts. Broking firms will soon have to show what they are charging for research and what for execution. Fund management firms will have to reveal how much they are paying for research and how much of that they are passing on to clients. And, in the UK at least, pension-fund trustees will have to report to members annually on such costs and charges they incur.

Now this is not so much a worry at the bulge-bracket end of the market where, say, a Merrill Lynch is dealing with a Fidelity, which is managing a Plc's pension fund. It will just be another layer of bureaucracy for all involved and one that will make for greater transparency. …

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