EU: Listing Act, MiFID – rules on payment for research and execution services 

 

The EU Commission has published the The Listing Act, that: 

• facilitates the listing of companies on EU capital markets 

• promotes the provision of investment research (particularly on SMEs) by allowing investment firms to pay for research and execution services either jointly or separately (‘bundling’/‘unbundling’ payment). 

Background: 

Directive (EU) 2021/338 of the European Parliament and of the Council (part of the “Capital Markets Recovery Package”) amended Directive 2014/65/EU of the European Parliament and of the Council (“MiFID II”) in order to support the development of investment research on small- and mid-capitalisation issuers seeking improved access to capital markets and investors. The amendment allowed investment firms to make joint payments for research and execution services, provided certain conditions were met. One such condition required that the research concern issuers with a market capitalisation not exceeding EUR 1 billion, calculated on the basis of year-end market capitalisation over the 36 months preceding the provision of the research. For issuers with a higher market capitalisation, the requirement to pay separately for research and execution services continued to apply. 

However, as the decline in investment research did not slow following this amendment, Directive (EU) 2024/2811 of the European Parliament and of the Council (part of the “Listing Act” package) further amended MiFID II to provide investment firms with greater flexibility in organising payments for execution services and research. In particular, the Directive: 

• removes the restrictive condition allowing the bundling of payments for research and execution services only where the research concerns companies with a market capitalisation not exceeding EUR 1 billion; 

• introduces more flexible rules enabling investment firms to choose the most appropriate payment method for execution services and research; 

• removes the obligation to separate payments where this requirement is considered excessively burdensome, while still allowing firms to maintain separate payment arrangements if they so choose; and 

• introduces transparency requirements requiring investment firms to inform their clients whether they use joint or separate payments. 

To ensure the consistent application of these amendments across the Union and to promote the availability of investment research on companies, the Commission should amend Delegated Directive (EU) 2017/593. In particular, the Commission should revise the rules governing payment arrangements for research provided by third parties to investment firms offering portfolio management, other investment services, or ancillary services. In this context, the Commission has requested technical advice from the European Securities and Markets Authority (ESMA).