Authors: Anqi Fu, Tim Jenkinson and David Newton and Ru Xie

Abstract:

The second Markets in Financial Instruments Directive (MiFID II) mandated the unbundling of payments for research and trading. This research explores whether the impact of MiFID II differs between large and small firms in terms of analyst coverage and stock liquidity. In particular, we focus on the London Stock Exchange with its more regulated Official List (Main Market) and less regulated Alternative Investment Market (AIM). We find a significant drop in analyst coverage on the Main Market, which leads to a deterioration in market liquidity. In contrast, the requirement of AIM firms to retain a Nominated Adviser (NOMAD), who often provide research coverage, has mitigated the impact of MiFID II. AIM firms have experienced marginally higher research coverage and liquidity, consistent with NOMADs facilitating the dissemination of firm-specific information.

Keywords: MiFID II, Unbundling, Analyst Coverage, Stock Liquidity, Idiosyncratic Liquidity

JEL Classification: D53, D82, G18

Bio:

Dr Ru Xie is an Associate Professor of Finance at School of Management, University of Bath. She specialises in empirical banking and finance studies. Her research output has attracted policy-makers' attention and has been featured in more than 100 media outlets including Financial Times, Bloomberg, CNN, NBC, Fortune etc. Her previous research has been published in international academic journals including the Review of Finance, Journal of Banking and Finance, the European Financial Management, the Journal of Financial Services Research, and the International Review of Financial Analysis.

Dr Ru Xie previously held position at Bangor University and visiting positions at Bank of Finland, Helsinki and House of Finance, Goethe University Frankfurt. She currently serves on the editorial board of the European Journal of Finance.