By Huw Jones
LONDON (Reuters) – European Union rules to inject transparency into fees for stock market research are working well despite industry warnings, and saved investors £180 million in their first year, Britain’s markets watchdog said on Monday.
The “MiFID II” rules which came into force in January 2018 force asset managers to itemise how much they pay brokers and banks for market research and executing stock trades.
Previously the fees were bundled together, making it harder for investors to see if they were getting value for money.
The reform aims to stop brokers offering cut price research to reward clients for their trading business, leading to weak competition.
Some brokers had warned that the reform would slash research on small companies, hitting turnover of share trading in the sector, and push out independent research providers who don’t have the resources of banks.
But Andrew Bailey, chief executive of the Financial Conduct Authority, said the watchdog maintained “strong support” for the reform, signalling it was expected to stay in the rulebooks after Britain leaves the EU.
“I think the evidence is, so far, inconclusive, and does not suggest the dramatically negative impact that some predicted,” Bailey told an event held by independent research providers.
The vast majority of asset managers defied expectations by paying for the research themselves rather than pass on the cost to customers, Bailey said.
This saved investors £180 million last year, or a billion pounds over the next five years if the savings rate is maintained.
Asset managers have slashed their research budgets by 20-30 percent, sending prices lower than anticipated, but the market has yet to find its long-term level, Bailey said.
The FCA has been reviewing how MiFID II is working and Bailey said he would publish a more formal response in the second quarter.
It will look at whether it could make changes into how the rules are applied for independent research providers.
“Competition creates winners and losers – this may mean some consolidation in parts of the market,” Bailey said.
(Reporting by Huw Jones; Editing by Andrew Heavens)