Blog: A Supplementary Question
Scott Fulton | 23rd October 2017
Amidst the wealth of unknowns surrounding MiFID II there is a lack of comment around corporate access; the provision of company meetings with fund managers by regulated firms (stock brokers).
As an independent specialist in corporate access, we have reviewed the available guidance from the European Securities and Markets Authority (ESMA) and the Financial Conduct Authority (FCA).
We believe that MiFID II requires fund managers to assess the potential benefit of these meetings. If they conclude that the benefit is material, they must pay the broker for arranging the meeting.
The definition of materiality remains vague but can be summarised as a service which;
“requires the allocation of valuable resources [by the MiFID II provider] and/or a service which could influence [the investment firm’s] behaviour”. ESMA Q&A, 4th April 2017
In our opinion, this definition covers any broker-led meeting between a company and a fund manager who does not hold shares in that company. If the fund manager does not pay for the meeting then it cannot take place. We highlighted this view in our recent report (MiFID II, Investment Research & Corporate Access: More or Less?).
However, we are aware of alternative views. There has been comment about the “Broker Exemption”. This appears to state that brokers can arrange meetings for their company clients and non-shareholders provided the company has paid for these meetings.
Not surprisingly, we are keen to test this suggestion before MiFID II is enacted. Therefore, we have included a new question in our recent survey of investor opinion;
“In your opinion, are you able to participate in a broker-arranged meeting with a company in which you do not own shares when you have not paid the broker for this meeting?”
We hope that answers to this question will prompt more debate over what could prove to be an issue for corporates and brokers alike from January 2018 onwards.
With MiFID II almost a reality, the need for co-operation between MiFID II and independent providers of services such as corporate access appears pressing.