Linkedin post from Scott Davis & Carter Copeland at Melius on Mifid 2 with some general commentary on what the research boutiques are facing…

November 23, 2018

Why MiFID II is Failing, and What YTD 2018 Reactions Tell Us About the Future

What we have found in practice is that MiFID II has actually connected research, trading, and investment banking more explicitly, rather than separate them further. At firms with strong investment banking franchises, research analysts have become more tied to the outcome of the banking function. We’ve been told that at some shops, banking now pays for as much as 70% of the research budget. Similarly, at firms with strong trading franchises, analysts are still tied to the flow on the desk, even including electronic and derivative trading. While direct research payments have most certainly declined (we think by about 30% globally), trading flow has not. Data from publicly-traded banks shows that independent research shops with trading desks have seen less impact from MiFID II than research shops without trading desks. And since research payments are down, you would think that sell-side research budgets and/or the number of research analysts would actually decline, but this has not been the case at all. Research budgets are expected to be at least flat, and possibly even up y/y in 2018. Therefore, the funding gap is clearly being made up by payments from either investment banking or trading, or both.

Full article on LinkedIn