Beat or miss? MiFID will make it harder to tell on earnings day
Overhaul of financial-services rules will lead to reduced coverage of some firms by banks, hundreds of analyst job losses
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JUST how good or bad were those earnings? That's going to get tougher to answer next year as Europe redraws the way investors pay for analyst research.
The overhaul of financial-services rules known as MiFID II (Markets in Financial Instruments Directive II) will lead banks to reduce coverage of some companies as a price war forces them to cut costs. It means the practice of comparing performance with "consensus" risks being collateral damage in the drive to make markets more transparent. It could lead to more dramatic swings in stock prices especially for smaller companies.
"As coverage falls, liquidity falls, volatility goes up and valuation ratios go down," said Leigh Drogen, whose firm Estimize compiles consensus figures based on submissions from fund managers rather than analysts at banks. "Coverage of estimates from the sell side is a very important aspect of liquidity especially for small-cap stocks."
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