A welcome change to research coverage: FCA scraps MiFID research rules on small-caps.

Late in 2021, the FCA  announced a change in legislation for sell-side research. From  March 2022, rules on sell-side research for companies with a market capitalisation of less than £200 million will be relaxed in a bid to increase the levels of research coverage for growth companies.

The rules on sell-side research all changed in 2018 following the introduction of a sweeping package of European market rules known as Mifid II. The changes forced broking firms to charge their buy-side clients separately for their research, rather than bundling the research together with trading and corporate access. The resulting change led to a significant reduction in the number of analysts covering small caps as brokers had to reduce costs to offset the drop in revenue.

It has also meant that a large amount of expert commentary in the equity markets is either unavailable or, because it can’t be distributed effectively, is no longer written. In summary, since 2018 rarely will brokers write research on small caps, which are not their clients, resulting in less research reports in the market.  

As a PR consultancy with clients from FTSE 100s to AIM quoted growth companies, we welcome this relaxation of the rules. We have always seen independent research as a critical tool when trying to communicate with investors on behalf of our clients.

The LSE is home to over 2000 companies and in 2021 AIM quoted companies raised a combined £9bn in IPOs and secondary raises. We look forward to increased levels of research for small caps who have to battle for their share of voice in a crowded market, and the return to pre MiFID ii coverage levels.