Calling “all hands on deck” – part 1

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Abstract

International Financial Forum Paris is the central event for the Paris-based financial authorities, operators and journalists to review the course of financial markets and how they are heading forward. This year, a noticeable roundtable was organised by MiFID Vision to discuss financial intelligence (financial research and corporate access).

During the event, Robert Ophele, President of the French Autorité des Marchés Financiers, expressed the regulator’s view on financial research and how it has been tackled so far. No consensual solution has been found and it is time to have one : the AMF has mandated Jacqueline Eli-Namer and Thierry Giami to find solutions to enhance research on small and mid sized companies (SME). Findings are to be delivered in November 2019 to be applied at the turn of the year.

There is a time for the vision, the analysis and there is a time for the action, and you have had a lot of time on the first 2 items and have seen that there is a negative spiral (…) We need to reverse this spiral and not wait for a change in the regulation.

Robert Ophèle, President of the Autorité des Marchés Financiers

ResearchPool has made several proposals to stimulate SME research and already offers north of 22k reports on our marketplace regarding companies with less than EUR 1bn in capitalisation. ResearchPool will gladly contribute its ideas, as the open digital platform for investment research.

This blog post is the first of a few regarding the ongoing development that the market as a whole applies to financial intelligence.

Full version

MiFID Vision was born in February 2018 to gather Paris-based stakeholders around the perceived risks on research following the advent of MiFID 2. Initially the work has been to collect data from multiple sources to observe what the regulation produced in terms of effect on corporate issuers, brokers and investors.

The data collected has shown several trends related to research, that may have been accentuated with MiFID 2. Possibly with MiFID 2 being a catalyst, but equally with MiFID 2 being a good excuse. In any case, the gathering brought together a panel of issuers (through Euronext, CLIFF and MiddleNext), investors (BNP AM, CDC Croissance, Moneta representatives) and sell side analysts (Exane, InvestSecurities, Oddo BHF) to offer some multi lateral views, that could be summed up as such:

  • Research analysis for companies has become less qualitative, especially in the equity and credit spaces,
  • Coverage of companies has tightened, with smaller capitalisations being impacted the most,
  • Corporate access (i.e. visits to issuers by investors) has become more cumbersome than before, in particular for smaller investors and smaller issuers,
  • Pricing of research has not been found its equilibrium, and some players have had price dumping tactics to maintain the access to investors.

Most of the trend regarding research were already at play several years ahead of MiFID, as M. Giami’s prior report on the financing of SMEs suggests. With the same conclusion: as research on a given company dissappears, so does the liquidity on its security, and the capability to access a large investor base.

The emergence of sponsored research seems to offer some respite for issuers, as they are able to pay for the continuation of their coverage by analysts. Investors, however, seem to have a perception that such research is biased ; which Oddo and InvestSecurities both strongly repelled. The issue here is that the lower capitalisation have 80% of sponsored research according to CLIFF data.

CDC Croissance, the specialist SME investment arm of Caisse des Dépôts group, sees the a strategic prerequisite in smaller capitalisation research for the emergence of tomorrow’s corporate champions. They have already taken steps to implement a solution with Euronext, which will formally be announced in September

Our first objective is to support the champions of the future, our second is to be more active in the stimulation of the SME research segment for more coverage and higher quality, our third is to grow the ecosystem for research with partners, together.

Aude Contamin, Head of Asset Management, CDC Croissance

Naturally, ResearchPool, will join the above players’ objective as the open digital platform for investment research, and has solutions for a number of the pain points mentioned during the session. With our key value of being a neutral place for all actors to cooperate, we expect to be a glue between all stakeholders.

The only issue we find in the AMF’s objectives is that we could have been more ambitious than just looking at SMEs, and to echo someone in the audience, as if the « French investments were only for the French ». Nevertheless, one needs to start somewhere.

How do we get a larger audience for sponsored research? ResearchPool is completely open to aggregate the sponsored research of all parties (already 7k reports for companies of less than EUR 1bn), and has 66% of trafic coming from outside Europe.

How do we create more traction on French SMEs investment? It is hard to subscribe to a dozen brokers offer for a coverage of up to 700 Euronext-listed stocks, it would be easier to subscribe to a bundled offer from brokers at a fixed price (Netflix style) or « à la carte » pricing. Yes, both models would work for ResearchPool.

Let us dive at other topics on which we could widen the scope of the AMF mandate, in details, in our forthcoming papers related to the impulse we can get for credit and ESG research.

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