Europe Readies MiFID Rollback to Increase Recovery Investment

The European Union is planning to roll back landmark regulations on securities trading and investment research, arguing that softer rules on the finance industry are needed to help the economy recover.

An EU plan to be unveiled in the coming days would loosen a key plank of MiFID II that forces investors to pay banks and brokerages for research separately from their trading fees. The “unbundling” rules have been criticized for removing the incentive for analysts to produce research, especially on smaller stocks that struggle to attract the attention of investors.

The new rules by the European Commission, the EU’s executive arm, would allow payments to be re-bundled for research on fixed income markets and companies worth less than 1 billion euros ($1.15 billion), according to documents seen by Bloomberg News.

“The current crisis makes it even more important to not impose burdens where they are not strictly necessary,” the commission said in the document. “Many stakeholders believe that increasing small and midcap research would lead to greater liquidity in those issuances.”

The change could take effect in early 2021, according to an official familiar with the plans, but still needs approval from the European Parliament and the bloc’s 27 member states.

When the coronavirus pandemic brought Europe’s economy to a grinding halt in March, politicians, regulators and central bankers focused first on facilitating bank loans to keep companies afloat. Now the goal is to avoid an excessive reliance on debt, which is seen as keeping firms from investing in their future and could even threaten their survival.

Executives from Societe Generale SA, JPMorgan Chase & Co. and BlackRock Inc., along with consumer advocates, in June said companies need access to equity investment more than ever because of the pandemic. They also recommended exempting research on emerging companies from the MiFID rules.

The EU proposal also cuts back on investor-protection rules that the industry has long complained about, including record-keeping and disclosure requirements primarily focused on professional investors.

The proposals also include:

  • Temporary relief from “best execution” reporting rules that normally require financial firms to disclose details about trading prices, costs and speed
  • A temporary version of prospectus rules that would allow for shorter versions of documents that companies must publish when they tap capital markets
  • Changes to securitization rules with the aim of freeing up banks’ balance sheets and helping them offload bad loans
  • Relaxation of position limits for certain energy derivatives contracts. The move would maintain limits on agriculture commodities

©2020 Bloomberg L.P.

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