European regulators are seeking feedback on proposed changes to the rules that govern how asset managers pay for research — along with proposed revisions to listing rules — that aim to bolster markets.
On Monday, the European Securities and Markets Authority (ESMA) published a paper setting out proposed changes to the trading rules, known as the Markets in Financial Instruments II (MiFID II) rules, that aim to reflect changes to the listing rules to allow firms to bundle payments for trading execution and research once again.
In 2014, regulators sought to curb the practice of fund managers bundling their payments to brokerage firms for research and trading execution, in an effort to avoid conflicts of interest in the provision of investment research and to ultimately improve investor protection.
However, in 2021, policymakers began easing these restrictions by allowing bundling once again for research on smaller companies (with market caps of under €1 billion).
Now, the curbs on bundling are being eased further “to offer investment firms more flexibility in the way that they choose to organize payments for execution services and research,” the regulators’ paper said.
“The objective of these recommendations is to help revitalize the market for investment research whilst balancing this objective with investor protection,” ESMA said.
To that end, “the recommendations further clarify the conditions that must be met by payments for research so that research may not be considered as an inducement,” the paper said.
Regardless of how firms choose to pay for research, they must adhere to certain conditions to ensure that these payments are not conflicted — including annual assessments, “of the quality, usability and value of the research used, as well as the ability of the research used to contribute to better investment decisions.”
The consultation is open until Jan. 28, 2025. ESMA aims to finalize its guidance to policymakers in the second quarter of 2025.
Separately, ESMA also launched consultations on proposed changes to the prospectus rules and on possible amendments to harmonize civil liability provisions for prospectuses.
The regulator said its recommendations are designed to ease regulatory burdens and to facilitate European capital market activity by simplifying the listing requirements for public companies, “while also preserving transparency, investor protection and market integrity.”
These consultations run until Dec. 31, and the regulators aim to finalize their policy advice in the second quarter of 2025.