The City of London's Evolving Landscape: A Tale of Analysts and Regulation
In the bustling financial district of London, a story unfolds that reflects the intricate dance between regulation, technology, and the ever-shifting sands of the financial industry. The narrative centers around the once-ubiquitous analysts, whose influence has waned in the face of a regulatory shift that reshaped the market.
The Golden Age of Analysts
In the 1990s, financial journalists had a treasure trove of information at their fingertips. Among these resources were the Extel awards, a prestigious event that celebrated the best analysts in the business. These analysts, often listed in thick volumes filled with handwritten notes, were the gatekeepers of knowledge, providing insights into individual companies and the stock market as a whole.
The Extel awards, once a grand affair with a guest speaker like the late Alistair Darling, were a highlight for those in the financial journalism sphere. The event, now replaced by a more subdued black-tie dinner, still holds significance as a benchmark for excellence in the industry.
The Impact of MIFID II
However, the landscape began to shift with the introduction of the Markets in Financial Instruments Directive II (MIFID II) in 2018. This EU directive, aimed at enhancing investor protection and market transparency, dealt a significant blow to the small and mid-cap segment of the UK equity market. Brokers were forced to charge separately for research, a change that had profound implications.
David Enticknap, CEO of Extel, acknowledges the impact, stating that MIFID II 'dealt equity research not a fatal, but certainly a painful, blow.' The numbers tell the tale: from 29 small and mid-cap retail analysts in 2007 to just 17 today, and a similar decline in support services analysts. The once-thriving sector has witnessed the disappearance of names like Bridgewell Securities and Seymour Pierce, while consolidation has led to the acquisition of Numis Securities by Deutsche Bank and the merger of Panmure Gordon with Liberum.
A Glimmer of Hope
Despite the challenges, there are signs of resilience. The Financial Conduct Authority's Investment Research Review in 2023 softened the rules, allowing asset managers to bundle payments for research and trade execution once more. This has sparked a glimmer of hope, with Enticknap suggesting that 'the seeds are there. But research has to be valued. The buy side has to value it. If there's research, liquidity will follow.'
The challenge now is to attract young talent back to the industry. In a world where tech startups offer lucrative opportunities, the allure of the City may wane. Persuading graduates that being a broker's analyst is a noble calling is crucial for the London market's revival.
As the financial industry continues to evolve, the story of the analysts serves as a reminder of the delicate balance between regulation, technology, and the human element that drives markets. The future of the City of London's financial analysts remains uncertain, but the lessons from the past offer valuable insights into the challenges and opportunities that lie ahead.
