The basics of MiFID 2

MiFID 2 is the revised “Markets in Financial Instruments Directive”, a broad set of European financial regulations that came into effect at the start of January 2018.

The original MiFID came into force in November 2007, just before the financial crisis. Its main intentions were to foster greater integration within Europe’s financial markets and to drive down trading costs, primarily for equites. The regulations also resulted in the creation of so-called multilateral trading facilities (such as Chi-X or Turquoise), which allowed equities of listed companies to be traded for the first time on platforms independent of large national exchanges, thus introducing competition and lowering the cost of trading.

Three years after the launch of MiFID, the European Commission (the executive arm of the European Union) began work on MiFID 2. The EC was keen to develop the existing legislation to build in lessons learnt from the financial crisis and to broaden its scope to encompass other asset classes. Simply put, the goal of MiFID 2 was to provide greater protection for investors and increase transparency throughout the capital markets.

Though the regulations do not specifically address listed companies (either inside or outside the EU), they dramatically impact the prevailing investment research and corporate access models offered by investment banks to institutional investors, which has significant knock-on effects for companies globally.

Perhaps the most relevant issue for IR teams that MiFID 2 seeks to address is how asset managers pay for research on companies and meetings with management, which they use to help them make investment decisions. Until now, asset managers received research, including written reports and phone calls with analysts, for ‘free’, i.e. the cost of this service was built into trading fees, which were often paid for by the fund managers’ clients. Conferences, roadshows and investment trips worked in a similar way. For the first time, fund managers are having to budget separately for research, corporate access and trading execution (something known as ‘unbundling’).

Faced with having to pay for these services themselves for the first time, investors are already becoming more selective in terms of what they consume. While it is still too early to understand the full impact of the new regulations, early indications point to an overall reduction in traditional research coverage and an increasing reliance on buy-side analysts over sell-side analysts. On the corporate access side, a decrease in investor attendance at broker-organised conferences and company roadshows seems inevitable, as investors look for more cost-efficient ways to study companies.


Main goals:

  • To make European markets more transparent and efficient;
  • To restore confidence in the capital markets following the financial crisis;
  • To move over-the-counter trading of various asset classes to established trading venues.


  • All 28 European Union countries;
  • A vast array of asset classes: equities, fixed income, commodities, currencies, futures, ETFs, retail products such as CFDs.

Who does it effect:

Almost everyone:

  • Companies in EU countries;
  • Companies in non-EU countries that operate in, or have investors in, the EU;
  • EU fund managers;
  • EU pension funds;
  • EU retail investors;
  • Indirectly (and to a lesser extent) fund managers in the US and Asia.

What does it mean in practice:

  • Unbundling of payments for research/corporate access from trading execution;
  • Introduction of volume caps for dark pools of equity;
  • Greater pricing transparency for OTC and off-exchange markets;
  • Tougher standards for financial and investment products.

The rise of alternative funding and implications for the effectiveness of investor relations

Emerging innovations within the capital market space will continue to present new opportunities for listed companies

The value of assets managed by the global investment management industry and the amount of assets that sit within global mandates continue to rise year on year. Research from PwC predicts that global assets under management will rise to $101.7 trillion by 2020, from roughly $70 trillion today. This will be primarily driven by pension funds, high net worth individuals and sovereign wealth funds, all of whom have been steadily increasing the global component of their investment portfolios.

Tapping into this capital efficiently, however, is far from straightforward for global issuers. As a result there has been a surge of interest in alternative funding methods and new technologies, which aim to boost speed, efficiency and transparency throughout the capital markets. Where exactly is the impact likely to be largest for investor relations teams?
Tapping into this capital efficiently, however, is far from straightforward for global issuers. As a result there has been a surge of interest in alternative funding methods and new technologies, which aim to boost speed, efficiency and transparency throughout the capital markets. Where exactly is the impact likely to be largest for investor relations teams?

Supply-demand matching

First, we can expect to see improvements in how companies target investors. Currently the tools for efficiently understanding who is interested – and to what level – in a given investment story, whether on a deal or non-deal basis, do not exist today. Technology drives the matchmaking process across a multitude of industries. The finance industry has arguably been one of the slowest to embrace its potential to improve the process for the 40,000-odd listed companies and more than 100,000 institutional investors.  Potential benefits include increased accuracy of targeting, a greater degree of access and control, reduced cost and a more diversified range of options.

Peer-to-peer funding platforms for listed companies

Second, we can expect improvements in how companies reach and engage new pockets of liquidity, especially within the retail investor segment. Investment-based “crowdfunding” (or market place investing— both equity and debt) has existed in limited forms for several years through online sites that allow investors to invest in specific projects predominantly for private companies. This model allows companies to raise capital to fund new ideas and more importantly, cultivate new clients who now feel they are participating in the growth of their businesses.

These new marketplaces may work in tandem with existing processes. The crowdfunding platform SyndicateRoom has revealed a tie-up with the London Stock Exchange that will allow ‘crowdfunding investors’ to participate in initial public offerings and placings on the main market of the LSE and AIM.

Blockchain applications

Third, we can expect vast improvements in efficiency and transparency in a variety of shapes and forms. One such form will be Blockchain technology applications within the equity and debt capital markets, which aim to tackle the vast inefficiencies which adversely affect the industry today through a centralised, digital ledger.

The scope of Blockchain’s pilot projects in this area has grown exponentially over the last three years. While these projects have so far generated more hype than tangible applications, the benefits that ‘distributed ledger’ technology can bring to the broader industry seem appealing enough to continue with its funding and development. The prize on offer, as one consultancy recently put it, is a new architecture, where all capital market participants work from common datasets, on an almost real-time basis, and where supporting operations are either streamlined or made redundant.

To take one example of what is already being done, BNP Paribas has designed a pilot scheme permitting private companies to issue securities on a primary market with e-certificates, developing a ‘live’ share register and access to a secondary market all via blockchain technology. We should expect similar progress in the near term in public markets, with increased accuracy in the identification and recording of shareholder movements and interactions.

Initial Coin Offerings and fundraising

Lastly, in niche areas, we can expect new blockchain based applications to support the fundraising process. Initial Coin Offerings (ICOs) are a fundraising exercise for cryptocurrency tokens such as Bitcoin or Ethereum, and have received a lot of press in recent months. Speculators continue to chase this new asset class. While these might at face value seem like attractive fundraising structures, they are ultimately of limited interest in a corporate context. The recent moves by the SEC (stating in July that cryptocurrency tokens can be securities) and China (banning fundraising through ICOs in early September), mean that an ICO is unlikely for the time being to work in an established corporate outside of a new tech startup scenario.

For IR officers, there are nevertheless some newly emerging areas of interest which are raised by the cryptocurrency experience.

  • ICOs have turned the traditional fundraising process on its head, marketing for a long time then fundraising in a matter of hours. The co-founder of Ethereum said “We managed to grow our base of ambassadors by attending meetups around the world, targeting groups and leaders in certain communities. Once they got on board… about 9,000 people participated in the crowdsale”. Might traditional equity capital raising follow this in certain circumstances, for instance where the fundraising is well flagged? For instance, a company with a well-prepared public market-style equity story can spend time educating potential target investors for up to two years pre-IPO. The public phase of the IPO could then be significantly cut.
  • The rise of cryptocurrency as a liquid means of exchange, irrespective of the underlying use-case, suggests that corporates could treat cryptocurrency as one of the currency options for the fundraising. In August this year, Fisco used a 200 bitcoin 3-year bond (worth $860,000 at the time) for an internal M&A transaction, as a test case with Japan’s approval of bitcoin as legal tender.
  • Primary transaction processes are slow, and investors who are not existing clients of the banks managing the deal are usually not able to participate. Blockchain authentication of the investors’ know-your-customer (KYC) status would broaden the addressable investor base. And this is just one application. In July this year, Daimler used a private version of Ethereum in a test case to issue a €100m 1-year bond. This used Blockchain to manage the whole transaction cycle from origination, distribution, allocation and execution of the loan agreement, to the confirmation of repayment and of interest payments.

The journey from today’s system to a new paradigm for our industry will take time. The obstacles to be overcome along the way may be significant, and it is far from clear what will ultimately emerge. However there is little doubt that technology will eventually transform our industry faster than we think. We can take clues as to how this may happen from examining just how communications, music, transportation, or even video rental industries have been transformed in the last 5 years alone. As in those industries, the finance industry will come face to face with huge opportunities, the beginnings of which we can see today.

The article was co-written by Michael Chojnacki from Closir and Julian Macedo from ECM Team and originally appeared in fall edition of IR Society’s Informed magazine.


Frontera Announces Partnership With Closir, Pioneering Digital Investor Relations Platform

Two Investment Technology Companies Cooperate to Democratize Access to Corporate Management Teams in Frontier and Emerging Markets

When the MSCI Emerging Markets Index was first launched in 1988, the entire market capitalization of the 10-country index was US$35 billion, equivalent to less than 1% of the world’s total equity market value.

Today, less than 30 years later, that index has grown to include 24 countries and its market capitalization now rests at over US$4 trillion, or approximately 10% of global market capitalization.

With index providers currently consulting on the potential reclassification of Saudi Arabia, Nigeria and Argentina to emerging markets, the coming years are expected to see an exceptionally large expansion.

Despite the increasing interest in these markets, most of the relevant research and data is most easily available to the largest financial institutions, and remains cost-prohibitive for smaller investors.

But recently the investment research and analysis industry, like many other elements of the traditional banking business model, has found itself under increasing pressure from rapid innovation in financial technology, or ‘FinTech’. The ongoing disruption and changing regulations are leveling the playing field to create new opportunities for companies that are able to efficiently address segments using technology.

One of the leading companies disrupting the model for delivery of data on emerging markets investment strategy is event-driven investment intelligence firm Frontera. Frontera’s team of experienced emerging markets researchers and analysts provide daily support to asset managers, hedge funds, individual investors, and the broader global business community. Frontera covers capital markets and political risk analysis in over 100 countries within Frontera PRO, its premium research service.

Frontera also provides its premium clients with access to a number of technology-driven integrations to further enhance the platform’s capabilities. Today Frontera is pleased to announce a strategic partnership with Closir, a digital investor relations and corporate access platform based in London.

Closir’s innovative platform helps buy-side institutional investors to organize face-to-face management meetings, conference calls and bespoke investment trips with emerging markets companies that fall outside of mainstream broker coverage, effectively automating what has traditionally been a grueling process for market participants.

The new partnership between the two companies will provide Frontera clients with full access to Closir’s automated digital investor relations technology. According to Frontera, equity research on companies that are not typically covered in mainstream sell-side research are in high demand amongst Frontera PRO subscribers. The partnership with Closir enables Frontera clients to build their own coverage map and directly request calls and meetings with publicly listed companies of any size in frontier and emerging markets.

“Frontera’s mission is to become the emerging markets investor’s most valuable information resource. Our partnership with Closir provides yet another useful service that helps our clients to better analyze the opportunities in our coverage universe,” said Kevin Virgil, Co-founder and CEO of Frontera .

“We’re looking forward to working with Closir,” said Tyler Cicirello, Co-founder and COO at Frontera. “Both companies have an intense commitment to support the global finance and investment industry that we serve and we’re excited to grow together.”

“We believe emerging and frontier markets present significant investment opportunities and are leveraging technology to make a global investor feel local, anywhere. We look forward to working with Frontera to empower global investors as traditional business models are challenged by structural changes,” said Michael Chojnacki, founder and CEO of Closir.

As two leading next-generation investment technology companies, Closir and Frontera are unified by a common mission to democratize emerging markets investing, and help both institutional and individual investors gain full access to under-represented capital markets.

Review of BCG’s Asset Management Survey

We had a chance to take a look at the Boston Consulting Group’s annual asset management survey which landed on our desks last week. Each summer the consultancy takes a fairly deep dive into the industry’s overall state of health and reviews its overall performance, as well as discusses emerging products and competitive trends. A few things we found particularly interesting:

  • For the first year since the 2008 financial crisis, revenue earned by asset management firms fell globally in 2016 along with profits. The biggest squeeze in margins come from those ‘in the middle’ i.e. from asset managers without large scale or a niche focus.
  • Global assets under management increased by 7 percent to $69 trillion, however most of that growth came from rising markets rather than new inflows which held steady throughout the year.

Screen Shot 2017-07-20 at 16.16.10

Screen Shot 2017-07-20 at 16.08.52

  • One area of growth area that particularly stands out is China, where the asset management industry is still relatively underdeveloped. The country’s assets under management increased 21 percent in 2016, mostly driven by net new inflows. Rising levels of household wealth, along with the development of insurance companies and pension funds, offer the potential for further gains in the coming years. Foreign companies, for whom the barriers to entry to the Chinese market are gradually disappearing, could stand to benefit from this trend.
  • Passive strategies were the largest driver of net fund flows in the US, where the industry is dominated by a few large players (the top 10 firms captured almost all of the inflows). This ‘winner takes all’ trend was less pronounced on the active side of things, where the 10 top firms captured 58% of net inflows.
  • Despite the faster growth of AuM in passive products, passives’ contribution to managers’ revenue pools “remains small.” Revenues from passive mandates grew from about $6 billion in 2008 to $14 billion in 2016, which only represents 6% of the industry’s global revenues. Even though various forecasts suggest passive investments could overtake active by 2021 (in terms of AuM), revenues will likely only reach around 7% of total revenues during the same period.
  • The asset class that has proved to be the most stable during the last few years is alternatives. Even though alternatives only accounted for 15% of AuM in 2016, they made up 42% of total revenues. The next two strongest contributors were active specialties as well as solutions and multi assets.

Screen Shot 2017-07-20 at 16.05.40

The survey concludes that growth in the industry is still possible, however only through a combination of M&A, cost management, and crucially, technology innovation.

Roadshow Dates To Avoid, 2nd Half 2017


  • 28 Aug-1 Sep: Summer bank holiday week
  • 4-6 Sep: Key EM Conference
  • 26-28 Sep: Key EM Conference
  • 23-27 Oct: School Half Term
  • 6 Nov: Key EM Conference
  • 13-14 Nov: Key EM Conference
  • 25-27 Dec: Christmas Holiday


  • 22 Sep: Key EM Conference
  • 29 Sep: Key EM Conference
  • 15 Oct: Assumption Day
  • 3 Oct: Day of German Unity
  • 29 Oct-2 Nov: Autumn School Holidays
  • 31 Oct: Reformation Day
  • 1 Nov: All Saints Day
  • 25-27 Dec: Christmas Holiday


  • 14 Jul: Bastille Day
  • 15 Aug: Assumption Day
  • 1 Nov: All Saints Day
  • 11 Nov: Remembrance Day
  • 25-27 Dec: Christmas Holiday


  • 12 Oct: Hispanic Day
  • 1 Nov: All Saints Day
  • 9 Nov: Our Lady of Almudera Day
  • 8 Dec: Immaculate Conception Day
  • 25-27 Dec: Christmas Holiday


  • 6 Nov: Day of Unity

Other Continental Europe:

  • 26 Oct: National Day (Austria)
  • 1 Nov: All Saints Day (Belgium, France, Germany, Italy, Luxembourg, Spain)
  • 11 Nov: Remembrance Day (Belgium)
  • 30 Nov: St Andrews Day (Scotland)
  • 5-8 Dec: Key EM Conference
  • 6 Dec: Independence Day (Finland)
  • 8 Dec: Immaculate Conception Day (Spain, Portugal, Italy)
  • 18-29 Dec: Christmas period (All)

New York / Boston

  • 4 Jul: Independence Day
  • 4 Sep: Labor Day
  • 6-7 Sep: Key EM Conference
  • 26-27 Sep: Key EM Conference
  • 9 Oct: Columbus Day
  • 10 Nov: Veteran’s Day
  • 23-24 Nov: Thanksgiving
  • 28-29 Nov: Key EM Conference
  • 25-27 Dec: Christmas Holiday


  • 9 Aug: National Day
  • 1 Sep: Hari Raya Haji
  • 18 Oct: Deepavali

Hong Kong

  • 25-Sep: Chinese Mid-Autumn Festival
  • 1 Oct: National Day
  • 17 Oct: Chung Yeung Festival

Dubai / Abu Dhabi

  • 1-3 Sep: Eid Al Adha
  • 18-19 Sep: Key Conference
  • 20 Sep: Key Conference
  • 22 Sep: Hijri New Year’s Day
  • 13-15 Nov: Key Conference
  • 30 Nov: Prophet Mohammed’s Birthday
  • 2-3 Dec: UAE National Day


  • 15 Jul: Democracy and National Solidarity Day
  • 30 Aug: Victory Day
  • 1-4 Sep: Kurban Bayrami
  • 29 Oct: Republic Day

Handling Investor Relations during a Crisis: Lessons Learnt from the 2011 Egyptian Revolution

This is a guest post from Omar Darwazah, Director,  Investor Relations at OCI N.V.

It seems that the entire world is in a constant crisis today. From Argentina to Russia to Turkey to the United States, there has been no dearth of crisis management situations which investor relations (IR) professionals have had to face. Whether it be political upheavals, civil wars, border disputes, fiscal disasters, wild foreign exchange fluctuations, military coups, capital controls, crazy presidential candidates or deeply entrenched state-sponsored corruption, investor relations professionals globally are finding it more difficult to craft their respective companies’ equity theses and messages to the investment community without finding themselves having to discuss geopolitics and global socio-economic trends. In 2011, I was Director of Investor Relations at Orascom Construction Industries (OCI) in Cairo, Egypt. I found myself in the middle of a historic event; I faced a systemic crisis that plagued the entire country as well as the company, it would forevermore change Egypt and its investment landscape.

On January 25, 2011, I readied to attend an annual Bank of America Merrill Lynch investor conference like I had done in years past. I boarded an 8am flight from Cairo to London to kick-off to OCI’s investor relations program and prepared presentations to current shareholders and prospective investors. Upon my arrival in London five hours later, however, the Egypt I had always known – run by the ironclad dictatorship of Hosni Mubarak and the brutality of his state police – had changed forever. A revolution was in the making. Thousands of people took to the streets to peacefully demonstrate en-masse against the regime. While I conducted meetings with investors on January 26, the state police clashed with protestors, the demonstrations turned violent, and the Egyptian equity index crumbled. The investors I was to meet at the conference turned to me for unbiased, candid interpretations of events on the ground.

As the revolution unfolded, the company’s CEO entrusted me to continue meeting investors. For 3 weeks I operated in crisis management mode and conducted over 70 one-on-one on-site meetings in London, Dubai, New York, Boston, Chicago, Frankfurt, Zurich, Geneva, Amsterdam and The Hague. JPMorgan invited me to lead a conference call with investor relations directors from other Egyptian blue-chip companies to advise them on handling the crisis. There was no hand-in-glove approach to managing the situation but I did share the following observations with my colleagues:

  1. The challenge of speaking to investors throughout the Revolution was primarily exacerbated by the lack of visibility on the ensuing chain of events
  2. Communicating with senior management on the ground in Cairo proved to be difficult given the lack of internet or mobile phone access throughout the 18 days of the Revolution
  3. For a contemporaneous update, I relied on speaking to various team and family members as well as friends by landline in order to provide investors with candid advice on the situation
  4. The routine questions on the performance of the company were never even asked and investors turned to me for unbiased interpretations of the unfolding events
  5. I combined my in-depth knowledge of Egypt, undergraduate training in Political Science and Economics and oratory skills to field difficult questions and deter a crisis within the global investment community. Speaking on behalf of the company and its performance became secondary in importance

In hindsight, the mere fact that I was present outside of Egypt and able to travel and meet investors proved to be extremely valuable. While serendipitous, the lesson learnt during my experience was that irrespective of the gravity of the crisis at hand, it is pertinent for IR professionals and management to be readily available and present to meet with the investment community even if they have bad news to report to them. That year, I ended up conducting over 300 one-on-one meetings in 25 cities globally. Here are some key takeaways from my experience:

  1. Investors appreciate full transparency and candidness during periods of high market uncertainty
  2. As an IR professional, be ready to simulate various scenarios during one-on-one meetings with investors with subsequent potential risks and mitigants of these scenarios
  3. Be ready to discuss broad topics that are typically not addressed during routine investor meetings
  4. Exogenous factors affecting company performance in times of uncertainty should be quantified as much as possible (i.e. impact on earnings, days of business interruption etc.)
  5. During a crisis, liaise closely with senior management and provide key updates and feedback from the broader investment community including analysts and investors as this helps with internal risk management
  6. Keep an open line of communication with the market, be ready to conduct a significantly larger number of investor meetings and global roadshows
  7. Disseminate factual information in writing in official company documents (i.e. press releases and results presentations) but leave speculative discussions, political opinions and forward looking statements in conversation only
  8. The best line of defense in a period of high and consistently evolving uncertainly proved to be a good offense (i.e. an aggressive roadshow strategy and meeting schedule)

That year, OCI’s share price outperformed almost all blue-chip companies on the EGX30 declining 30% versus almost 50% for the EGX30. Moreover, my crisis management strategy was acknowledged by the Middle East Investor Relations Society (MEIRS). As voted by the global buy-side and sell-side community, I won the MEIRS “Best Investor Relations in Egypt” award that year. I will no doubt face other crises during my IR career, they might not carry the same severity and intensity of the Egyptian Revolution in 2011 (or maybe they will!) but I believe the aforementioned takeaways are valuable in a multitude of crisis contexts; remember candidacy first, always.