The FT this morning reported a drop in analyst numbers covering UK mid-cap companies and a significant drop in the liquidity of their stocks between January and June this year. Are the MiFID II research rules to blame?

While the drop in analyst numbers is a logical outcome, it seems surprising that managers whose investment strategies would, pre-MiFID II, have involved trading UK mid-caps would have slowed trading due to lack of available research. Our observation has been that research purchased by managers has tended to be more focused under the new rules but they have not resulted in changes to investment strategy.

It would be interesting to see a comparative study of mid-cap stocks listed in other European jurisdictions. Perhaps the drop in liquidity of UK-listed mid-caps might have more to do with Brexit than MiFID II, for example.

The UK’s mid-cap companies have suffered a sharp drop in liquidity while their analyst coverage has shrunk in the first half of the year, according to data suggesting that new European markets rules around research distribution are beginning to bite.