Reports on Monday suggest the Macquarie Group will be laying off a number of its European division employees. The Financial Times report indicates that the Australian investment bank is letting a number of employees go in response to parts of the European Union’s Markets in Financial Instruments Directive (MiFID II) regulations that target equity research.
MiFID II, which went live on January 3, 2018, is touted by the EU as providing transparency and protection to investors – retail or institutional. Prior to the regulation going live, fund managers would usually attach any research costs to their commission or fees.
This will no longer be possible as MiFID II means that they will be forced to extract their research costs from any other fees they charge. As a result, fund managers are trying to cut back on the number of investment banks and brokerage firms they take research from.
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Macquarie has now borne the brunt of these requirements as it will be laying off some of its European analysts. The firm released a statement on Monday claiming that it is restructuring its research teams to focus only on a small number of key areas.
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Macquarie’s departing analysts may feel some level of comfort in knowing that they are not the only ones to lose their jobs in recent years. Since MiFID II was announced by the EU in 2014, the number of analysts at the 12 biggest investment banks and banks has fallen from 6400 to 5600 – meaning one-eighth of those jobs no longer exist.
As the industry continues to grapple with the changes, it looks as though there is likely to be a continual squeeze on research analysts. The reduction in available jobs may lead to a situation in which only the very best can survive.
At the same time, fund managers will want to pay lower fees for research which in turn will lead to lower wages for analysts. To some degree, this can already be seen as firms are charging substantially less for their most basic research reports.
With the EU’s General Data Protection Regulation (GDPR) also likely to drastically alter buy-side firms’ business models when it goes live on the 25th of May, the industry looks to be heading through turbulent times. Having put in the all the legwork to meet MiFID II requirements, firms will now have to struggle through another set of stringent EU laws. Whatever happens, the industry looks set for massive changes.