In: Stock exchange

What is MiFID II?

MiFID II is a key directive of the European Union introduced in January 2018, aimed at reforming financial market regulations in Europe and ensuring greater transparency and protection for investors. This directive, replacing the original MiFID, covers a range of aspects of trading on the EU financial markets, from stocks and bonds to commodities. The introduction of MiFID II represents a significant shift in financial regulations, focusing on improving market structure and increasing accountability for financial instruments.

Which part of MiFID II is disadvantageous for small and medium-sized enterprises?

At first glance, the Directive seems to bring about a number of changes beneficial to the market and, above all, to investors. By introducing more stringent requirements for transparency, investor protection, and the independence of market research, the directive aims to create a safer and more stable financial environment. The increase in transaction transparency and the requirement to separate research costs from transaction services are intended to provide investors with a better understanding and control over the costs they incur.

One of the changes, which has led to differing opinions regarding its consequences, concerns the separation of payments for research from the execution of orders. As a result of this change, research must now be treated and accounted for separately from other services provided by financial firms, such as financial transactions. This reform was aimed at increasing transparency and reducing conflicts of interest.

Previously, market research was often provided by brokerage firms as part of a broader service, including the execution of transactions (trading stocks, bonds, etc.), and was not directly priced. In other words, research was "bundled" with other services, and its costs were included within the overall transaction fees. Clients did not pay directly for research but rather for transaction services, and access to research was seen as a 'bonus'.

MiFID II introduced the requirement for "unbundling" these services. This means that firms must now clearly define and price market research as a separate service. Such an approach aims to increase transparency and allow clients (investors) to better understand the costs they are paying for, and to reduce potential conflicts of interest (where access to research could be contingent upon other services).

As a result, clients must now decide whether and for which research they want to pay, changing the way research is produced and consumed in the financial market.


The new regulations have led to a reduction in the amount of research on the market. Interestingly, it was the large-cap entities that suffered more significantly. However, the decline in coverage most affected the visibility of small and medium-sized companies in the market, potentially making it more difficult for them to attract investors and secure financing. The reduction in coverage is particularly problematic for small-cap companies, where information was already less available compared to larger entities.

Other effects of MiFID II concerning research2

Following the implementation of MiFID II, there was a significant decline in the number of sell-side analysts covering European companies. This was especially noticeable in the case of companies that were less significant to sell-side analysts.

Despite the reduction in coverage, the quality of sell-side research has paradoxically improved. According to academic studies on the subject, the forecasts of individual analysts have become more accurate, and stock recommendations have triggered stronger market reactions. 

How small and medium-sized enterprises can combat this change?

Brand Building: Actively promoting the company among entities involved in market analysis and among institutional investors or Family Offices to increase its recognition.

Building Relationships with Analysts: Establishing and maintaining connections with independent analysts who can provide objective and detailed analyses of the company's operations.

Who can help?

There is a wide range of firms specializing in corporate image creation that effectively build recognition for companies among both individual and institutional investors. Small investments in these services can significantly enhance the prestige and visibility of the company in the financial market. 

Euro Capital Research specializes in this field and aims to connect high-quality companies with potential investors. We provide data about companies to approximately a hundred Family Offices in Europe. ECR focuses on presenting valuable information about a selected group of companies that can be used as an initial tool for screening and assessing potential investments. Additionally, upon request from Family Office clients, we organize meetings with company management, facilitating direct dialogue and a deeper understanding of potential investment opportunities.

  1. Anselmi, G., & Petrella, G. (2021). Regulation and stock market quality: The impact of MiFID II provision on research unbundling. International Review of Financial Analysis. ↩︎
  2. Fang, B., Hope, O., Huang, Z., & Moldovan, R. (2020). The effects of MiFID II on sell-side analysts, buy-side analysts, and firms. Review of Accounting Studies, 25, 855 – 902. ↩︎

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