Small-cap managers brace for reporting season amid MiFID II research 'degradation'

Came into force in January

Managers of UK small-cap equity funds fear the full force of recent MiFID II research rule changes have yet to hit the sector, including a further reduction in coverage and a negative impact on research quality.

MiFID II, which came into force in January 2018, requires buy-side firms to pay separately for "substantive", value-added research they receive from brokers, otherwise this would amount to an inducement to trade. The introduction of the new rules has already seen asset managers reduce the amount of research and number of brokers they are using, which in turn has prompted analysts to start leaving brokers in their droves. Prior to the introduction of MiFID II, there had also been warnings the small-cap space, which was already relatively under-researched compared to large-cap peers, co...