Insights from our #illumination event / Managing the impact of MiFID II
To accompany the release of the special edition of our Reporting Matters magazine, ‘Making sense of MiFID II’, 29 November saw Luminous host a breakfast seminar on the impact of this directive on small and mid cap company investor relations.
We were delighted to welcome Gareth Evans, founder and CEO of Progressive Equity Research, and Gary Davies, CEO at The Investor Relations Society, as guest speakers, alongside Dominic Moore, Digital Engagement Director at Luminous.
The event looked at how companies can mitigate the impact of reduced levels of sell-side analyst research, one of the unintended consequences of MiFID II for smaller companies.
Gareth Evans, our opening speaker, explained that pre-MiFID II, asset managers received research ‘free’, in effect paying for it through trading commissions which were passed on as a cost to clients.
Post MiFID II, the process by which research is obtained looks very different, with asset managers paying for it as a separate business cost. The intention of MiFID II is that research costs are ‘unbundled’ to help ensure shares are traded in the most efficient location.
How are corporates likely to be impacted?
According to Bloomberg Analyst Metrics, FTSE 100 companies have on average 23 covering analysts whereas companies outside of the FTSE 100 have an average of 3.2 analysts following them. Compounding this, where publishing research on smaller companies has become less economic, there is likely to be a knock-on effect on the quantity and quality of that research.
How can companies minimise the impact of MiFID II?
Gareth Evans says:
- “Don’t let the tail wag the dog.” Companies should not let MiFID II change how they are being run. Good analysts are more likely to follow a company that is well run.
- Engage with covering analysts. Feed them the information needed to carry out their role.
- Find out where, and to whom, research is being sent.
- Consider additional routes to research or distribution, such as a company-sponsored or joint broker.
- Focus on high quality communication. Use your annual report, online report and corporate website to disseminate your story.
Gary Davies stresses the importance of The IR Society’s 5 Cs:
- Commitment of top management to the investor relations process.
- Consistency – As Gary says: “Talk to investors in good times and bad, maintain the relationship. At some point you will have to give the profit warning, so build the relationship early.”
- Clarity of your messaging and strategy is key.
- Credibility – Investor relations personnel need to be authoritative spokespeople, giving the market what it needs to adequately understand the company.
- Conduit – Engage with investors to understand their perceptions of your company.
Dominic Moore’s top tips to optimise investor relations content:
- Take inspiration from your competitors, peers and best practice IR sites.
- Leverage the content of your annual report in your corporate website.
- Interactivity is a powerful tool for engagement.
- Offer a compelling investment case. As Dominic says: “It’s about storytelling and making an emotional connection with your audiences.”
- Optimise SEO to improve access to your content.
The Luminous view
Companies, particularly those outside of the FTSE 100, will have to work to make up for the shortfall in research, optimising communications and prioritising investor engagement.
And finally, ‘Thank you’ to our speakers for their valuable insights and practical suggestions for investor relations practitioners in a post MiFID II world.
If you’d like to discuss how we can help in light of MiFID II, please get in touch.
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