MiFID II

MiFID II is European legislation which came into force on 3 January 2018 and seeks to provide a European-wide legislative framework for regulating the operation of financial markets in the European Union.

Background

Among the wide ranging changes introduced by MiFID II, the new legislation introduced important changes with respect to how investment managers and certain other firms based in the European Union can provide and receive research and corporate access. Specifically, the legislation established payment for research with dealing commissions as a prohibited inducement, and prohibits firms providing execution services from bundling corporate access services into those charges.

In summary, the new regime stipulates a general prohibition on investment managers cannot receive research unless:

  • it is paid for – either out of the investment manager’s own resources, or via a research payment account; or
  • it falls within the concept of a “minor non-monetary benefit”.

The new rules on research have also made it clear that corporate access services will not typically be within the scope of research, so cannot be provided as part of a research fee. Where an investment firm provides execution services, as well as corporate access services, these must be charged for separately.

As described in more detail below, the research which Alvarium Capital Partners produces falls within the concept of an acceptable minor non-monetary benefit, and can therefore be received by investment managers without payment. As Alvarium Capital Partners does not provide execution services to buy side investors, it can continue to provide corporate access services.

The obligation to assess inducements in the context of the receipt of research and corporate access under MiFID II applies directly to EU based investment managers, and at this early stage their businesses practices and approach are varied. We do not provide secondary trading execution services and therefore have structured our business in a way which is free from any conflict in respect of inducements. As such, Alvarium Capital Partners seeks to comply with both the letter and the spirit of MiFID II to serve our corporate issuer clients with the widest possible provision of research and corporate access.

Issuer Sponsored Research Only

Alvarium Capital Partners is a specialist equity capital markets and advisory firm. Alvarium Capital Partners provides marketing, capital raising and corporate finance advisory services to corporate issuer clients and does not provide any execution services or secondary markets trading services to buy side investors or otherwise seek to earn commissions or fees from our buy side clients. As such the research Alvarium Capital Partners provides cannot give rise to an inducement.

All research materials produced by Alvarium Capital Partners fall into one of two categories:

  • Research associated with new issuances (IPOs, rights issues, etc) or other fundraising activity which is prepared by Alvarium Capital Partners on the instruction of an issuer client; and
  • Thematic or company-specific equity research #which has been commissioned or paid for by an issuer client as part of an agreement (which may include a corporate broking agreement) between Alvarium Capital Partners and the issuer client or in our capacity as a retained advisor for the issuer client.

(together “Issuer Sponsored Research”).

All Issuer Sponsored Research, and therefore all research produced by Alvarium Capital Partners, is paid for by our corporate issuer clients. Moreover, such Issuer Sponsored Research is made generally and freely available to the public both on our website and/ or via research aggregation platforms.

Under COBS 2.3A.19 of the FCA Handbook, such Issuer Sponsored Research is expressly stated to fall within the scope of an acceptable minor non-monetary benefit and therefore it can be received by investment managers without payment and without breaching obligations relating to inducements and the receipt of investment research.

Market Colour

Alvarium Capital Partners may also produce non-substantive commentary i.e. market colour for distribution. Such commentary is general in nature and does not constitute investment research as defined in Recital 28 of the MiFID II Delegated Directive but will instead fall within the scope of a minor non-monetary benefit and therefore can be received by investment managers without payment and without breaching obligations relating to inducements and the receipt of investment research.

Corporate Access

Alvarium Capital Partners provides various types of corporate access on behalf of its issuer clients to buy side investors including roadshows in support of specific transactions or in order to raise a corporate issuer’s profile more generally.

ESMA guidance in connection with MiFID II, makes it clear that corporate access services can constitute an “acceptable minor non-monetary benefit”. Furthermore, ESMA guidance also states that where a provider facilitates corporate access but does not itself provide other execution services to the firm receiving the corporate access service, the primary potential conflict of interest or inducement risk is removed and therefore the corporate access can be received.

As described above, Alvarium Capital Partners does not provide execution services to buy side investors. Further, where Alvarium Capital Partners provides corporate access services, this is on the behalf of corporate clients where we are retained for that purpose or otherwise remunerated in respect of corporate finance activity. Accordingly, the guidance from ESMA indicates that receiving corporate access from Alvarium Capital Partners does not give rise to an inducements issue for those firms receiving the corporate access. As such, investment managers can continue to receive corporate access provided by Alvarium Capital Partners without the need to make any payment and without breaching regulatory obligations relating to inducements.

If you have any questions around the impact of MiFID II and how Alvarium Capital Partners can support you with high quality research and corporate access in the new environment, please do not hesitate to contact us.