Best Practices

Examining MiFID II After Implementation

Examining MiFID II’s Impact After Implementation

Last August Callan outlined some of the issues raised by MiFID II, the second iteration of the Markets in Financial Instruments Directive. We wanted to provide an update on the directive, which took effect at the start of this year.

First some background. MiFID II is a European Union regulation that affects all European banks, fund managers, retail investors, pension funds, hedge funds, high-frequency traders, and exchanges and applies to equity, fixed income, commodity, currency, ETF, and futures markets. It also affects U.S.-based managers with operations and portfolio management teams in Europe.

It mandates that investment firms charge separately for research and brokerage services to avoid conflicts of interest. It also limits the trading volume in any one stock that changes hands within private markets or “dark pools” to 8%, and it provides pricing transparency for off-exchange markets. This affects how investment research is paid for, how trades are executed and documented, as well as how brokers share information, find the best prices, and pay one another.

Its intent is to promote more transparency and confidence in the financial markets in response to the Global Financial Crisis.

What Has Been the Response?

While the legislation requires transparency, investment managers can choose how to allocate their unbundled research costs—either proportionately to clients or absorbed at the firm level, which has been the more common response. Although the United States has not introduced similar legislation, some U.S.-based managers have incorporated MiFID II requirements across their client base.


The most direct impact is the unbundling of investment manager research costs. Managers affected by the regulation will now be required to budget research and trading costs separately.

Disaggregating trading and research costs as well as the reporting required may increase total costs for investment managers. This could disadvantage smaller organizations with fewer resources. Additionally, the sell-side community may be impacted by the need to offer separate services, perhaps leading to fewer sell-side research firms remaining viable for the investment management community.

Callan College banner

Posted by

Share on facebook
Share on twitter
Share on linkedin
Related Posts

The Heat Is On! Carbon-Footprinting Basics for Institutional Investors

Amit Bansal
Amit Bansal explains what carbon-footprinting means for institutional investors.

Callan Study Examines ESG Practices by Investment Managers

Kristin Bradbury
Kristin Bradbury summarizes our 2023 Asset Manager ESG Study.

Unlocking the Secrets of the 'Data Vault'

Bo Abesamis
Bo Abesamis describes the Callan "Data Vault," a repository where data is collected, cleansed, aggregated, and curated.

Green Financing in Residential Real Estate

Aaron Quach
Christine Mays and Aaron Quach explain green financing and how it can help investment managers obtain more favorable financing terms.
Private Markets

Alignment of Interests: Best Practices to Make Sure Investors and Their Managers Are in Sync

Jan Mende
Jan Mende discusses how institutional investors can make sure their interests are aligned with their private markets investment managers.
Public Markets

Why It Was a Tough 4Q21 for Large Cap Growth Managers

David Wang
David Wang analyzes the tough market environment for large cap growth investment managers in 4Q21.

Three Potential Paths to a China A-Shares Allocation

Global Manager Research
We discuss three paths to implementing a China A-shares allocation.

The Technology Revolution Catches Up to Commercial Real Estate

Bernie Bazile
Bernie Bazile explains "proptech" and what institutional investors need to know about it.

What We Found in Our Latest COVID-19 Survey of Investment Managers

Global Manager Research
The 3rd edition of our Coping with COVID-19 survey of investment managers focuses on plans for office reopenings and vaccination policies.

What You Need to Know About the Net Zero Asset Managers Initiative

ESG Consulting Group
Under the initiative, asset managers work with the companies they invest in to set targets to reach net zero emissions by 2050.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.