Was MiFID II effective in unbundling execution and research services?

63 Pages Posted: 9 Feb 2020 Last revised: 21 Apr 2020

See all articles by Zheng Liu

Zheng Liu

Bentley University, Department of Accountancy, Students

Ari Yezegel

Bentley University - Department of Accountancy

Date Written: April 20, 2020

Abstract

The European Commission passed Markets in Financial Instruments Directive II (MiFID II), in part, to unbundle brokers’ execution and research services. We empirically examine the effectiveness of MiFID II in achieving this goal and find that the trading volume generated by the brokers that issued recommendation revisions declined significantly after the enactment of MiFID II. In contrast, the aggregate trading volume response to revisions remained the same. Further, we find that the value of recommendation revisions did not change while forecast accuracy and bias improved. Finally, we evaluate the potentially asymmetric effect of MiFID II on brokers and independent research providers and find evidence suggesting that MiFID II helped level the playing field. These results, collectively, suggest that MiFID II was effective in separating research and execution services and leveling the playing field without significantly hurting the quality of sell-side equity research.

Keywords: MiFID II, stock recommendations, forecasts, independent research providers, regulation, equity research, unbundling execution and trading services

JEL Classification: G12, G14, G23, G28

Suggested Citation

Liu, Zheng and Yezegel, Ari, Was MiFID II effective in unbundling execution and research services? (April 20, 2020). Available at SSRN: https://ssrn.com/abstract=3525201 or http://dx.doi.org/10.2139/ssrn.3525201

Zheng Liu

Bentley University, Department of Accountancy, Students ( email )

175 Forest Street
Waltham, MA
United States

Ari Yezegel (Contact Author)

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
+1.781.891.2264 (Phone)

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