UK fund managers are not willing to pay brokers to set up corporate meetings when new EU rules come into force next year, a survey from Capital Access Group (CAG) has found.
From January, the second Markets in Financial Instruments Directive (Mifid II) – a piece of regulation designed to increase transparency across all asset classes – will prevent fund managers receiving any free extra service from a broker which could be seen as an inducement to trade.
This could include meetings set up by a broker between a fund manager and a corporate. But CAG’s study found that fund managers are mostly not willing to pay for this service.
It also revealed confusion across the market as to how the rule will operate, with half of the respondents to CAG's survey unsure whether an exemption might apply in some circumstances where the broker is simply co-ordinating meetings.
“UK companies risk being shut out of the market by confusion around Mifid II,” said CAG's Scott Fulton. “Our research shows that fund managers are not clear on whether they can use stockbrokers to arrange meetings without payment. This uncertainty may reduce the communication between investors and UK companies.”
According to Edison Investment Research’s Neil Shah, the European Securities and Markets Authority (Esma) has attempted to give guidance on this point. A normal post-results “roadshow”, where a broker lines up meetings for a corporate in a concentrated period with interested fund managers, will not constitute an inducement. But anything involving more logistics and effort on the broker’s part must be paid for by the fund manager.
“If an asset manager is taking roadshows out of the normal post-results period, you need to pay for those separately as if it's a concierge service because that's what is being provided,” Shah said. He added that in most cases the payment will be a tiny amount, such as $100 (£76).
“The final thing the Esma guidance says to asset managers is that the easiest way not to fall foul of the inducement rule is to contact the management teams directly. That's what a lot of people are doing,” Shah added.