MiFID II
Background
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.
While the broader scope of MIFID II is wide ranging, the new legislation introduced important changes with respect to how investment managers and certain other firms based in the European Union receive research and corporate access. Specifically, the legislation prohibits the payment for research and corporate access with dealing commissions as a prohibited inducement.
In summary, the new regime stipulates that investment managers cannot receive research or corporate access 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”.
As described in more detail below, both the research Tamesis produces and the corporate access it provides, fall within the concept of a minor non-monetary benefit, and are therefore capable of being received by investment managers without payment.
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, Tamesis 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
Tamesis is a specialist equity capital markets and advisory firm. Tamesis 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 Tamesis provides cannot give rise to an inducement.
All research materials produced by Tamesis fall into one of two categories:
Research associated with new issuances (IPOs, rights issues, etc) or other fundraising activity which is prepared by Tamesis 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 Tamesis 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 Tamesis, 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 a 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
Tamesis 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
Tamesis 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 MiFID investment services (e.g. trading 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, Tamesis does not provide execution services to buy side investors. Accordingly, in ESMA’s view, receiving corporate access from Tamesis, 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 Tamesis without the need to make any payment and without breaching regulatory obligations relating to inducements. Further, where Tamesis 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.
If you have any questions around the impact of MiFID II and how Tamesis can support you with high quality research and corporate access in the new environment, please do not hesitate to contact us.