Why the EU’s Mifid II might hurt Japanese share prices

I partly set up this blog to address the lack of good quality information on Japanese companies in English, as well as to analyse how European and Japanese business cultures interact. An article in the Nikkei Business magazine regarding the impact of the European Union’s new financial regulations, Mifid II, on Japanese share prices unexpectedly fed into both those motivations.

Mifid II (The Markets in Financial Instruments Directive II, well explained by the Financial Times) has been causing much irritation amongst friends of mine who are investment advisors or equity analysts now unable to find jobs, thanks to the most well known aspect of it, which is that asset managers will now have to pay for research and phone calls to analysts.  Before January 2018 the cost of this was built into the trading fees.

As the Nikkei Business article points out, it is not efficient for large securities brokers, who provide services to customers globally, just to charge research service fees to European investors.  In any case, as pointed out by the Financial Times article, the requirements in Mifid II have an impact on US brokers’ status and also cover any asset that has an underlying product listed in the European Union.

So many brokers are cancelling the big ticket investor relations events that they used to host for free.  CITIC CSLA used to hold a Japan equities IR event every February, but this has been cancelled for 2018.  The rumour is that there was a concern that there would not be enough participants, now costs have to be justified to investors.

“People are no longer spending money on research” says Richard Kaye, Analyst for Japan at Comgest, questioning whether Mifid II is really “helpful”.  Daiwa Institute of Research’s Shungo Koreeda says that foreign investors are likely to become much more discriminating in their choice of research from Japanese securities companies.

As foreign investors account for around 70% of  trading in Japanese equities, if there is insufficient information available on Japanese equities to help investment decisions, it may have a negative impact on the Japanese stock market, concludes Nikkei Business.


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