How Will MiFID II Change the Economics of European Equity Research?

With the implementation of MiFID II just months away, European equity brokers and institutional investors are holding fast to their wait-and-see approach to what could be revolutionary change to their business. The result is an industry beset with uncertainty, and one that could face significant disruption when new rules on payments for investment research take effect at the start of 2018.

High stakes for Global, Regional and Specialist Brokers

To put the European equities market into context, the Greenwich Associates universe of 340 European institutional equity investors generated an estimated $2.9 billion in cash equity commissions for the 12 months ended Q2 2017. Of that amount, 46% was used to compensate brokers and other providers for equity research and advisory services.

Those numbers suggest the market for European equity research and advisory services is worth at least an annual $1.35 billion to the Street. “Capturing a share of that revenue is more important than ever for brokers, since both the total amount of commissions generated on European equity trades and the proportion of that total used for research are shrinking,” says Greenwich Associates consultant Satnam Sohal.

Despite this, the industry is remarkably stable as brokers wait to see how large institutional investors will alter their research consumption and payment practices, and investors are sounding out brokers on how they will price their research and advisory services under the new regime.

2017 Greenwich Leaders in European Equity

The list of 2017 Greenwich Share and Quality Leaders in European Equity Research/Advisory and European Equity Trading reveal no signs of MiFID-induced upheaval. Rather, the list of Greenwich Leaders is generally consistent with that from 2016, with the few notable changes in position attributable to the performance of individual brokers, as opposed to any shifts in strategy in advance of MiFID II.

2017 Greenwich Share Leaders in European Equity

The 2017 Greenwich Share Leaders in European Equity Trading roster is virtually identical to that from last year, with first-place UBS, second-place Bank of America Merrill Lynch and third-place co-winners J.P. Morgan, Morgan Stanley and Credit Suisse all retaining their positions from 2016.

While there was a bit more shuffling of position year-to-year among the Greenwich Share Leaders in European Equity Research/Advisory, all the brokers on the 2017 list also made an appearance in 2016, including Morgan Stanley and Bank of America Merrill Lynch, which are currently tied at the top of the market, and J.P. Morgan, UBS and Exane BNP Paribas, which are statistically tied in terms of the institutional “Advisory Vote Share.”

“The shake-up will likely come at the beginning of 2018,” says Greenwich Associates Managing Director Jay Bennett. “People are holding off strategic decisions until they get better idea of how this will play out. Right now, there is a scramble among brokers for insight and data about how investor behavior will change under the new rules—and vice versa.”

2017 Greenwich Quality Leaders in European Equity

As MiFID II forces the market closer to an “unbundled” structure, research providers will be forced to compete for customers more directly based on the quality of the research and advisory services they deliver. Firms that achieve the title of Greenwich Quality Leader in this business should be well positioned to compete under that new model. The 2017 Quality Leaders in European Equity Research and Analyst Service are Bank of America Merrill Lynch, Exane BNP Paribas, J.P. Morgan, Morgan Stanley, and UBS.


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