Introduction
The Listing Act Directive1 reforms introduce a significant change to the MiFID II research regime by allowing investment firms sgreater flexibility yin how they pay for research and execution services. In particular, firms may now choose to pay jointly or separately for those services regardless of the market capitalisation of the issuer concerned. This Briefing Paper outlines the key changes introduced by the Listing Act Directive.
Background
One of the more controversial features of MiFID II was the introduction of the so-called “unbundling” regime, which became applicable from January 2018. Under those rules, the traditional practice of investment firms spaying for investment research through bundled brokerage commissions was largely prohibited. Instead, investment firms were generally required to separate payments for investment research from payments for execution services and either: (i) pay for investment research from their own resources; or (ii) establish a Research Payment Account (“RPA”), under which research costs were funded through research charges agreed with clients and subject to specified budgeting, governance and disclosure requirements.
Over time, however, concerns emerged regarding the effect of those requirements on research coverage, particularly for small and medium-sized enterprises (“SMEs”) and mid-cap issuers. Market participants argued that research budgets contracted following the introduction of unbundling and that smaller issuers were disproportionately affected through reduced analyst coverage and lower visibility among investors.
The 2021 Capital Markets Recovery Package introduced a narrow exemption allowing bundled payments for research and execution services where the research related to issuers with a market capitalisation below €1 billion. Ireland transposed those measures through the European Union (Markets in Financial Instruments) (Amendment) Regulations 2022, which came into operation on 28 February 2022. However, the exemption was widely regarded as having delivered little practical change, largely because firms were reluctant to operate different payment models for different categories of issuer and instead continued to apply a single unbundled approach across their business.
Rebundling
The most significant change introduced by the Listing Act Directive is the amendment of MiFID II to remove the €1 billion market capitalisation threshold that previously limited the availability of bundled payments for research and execution services. As a result, MiFID II no longer requires firms to separate research and execution payments in all circumstances. Instead, firms are permitted to choose between bundled and unbundled payment arrangements, subject to specified transparency, governance and oversight requirements.
Investment firms may now choose to pay either jointly or separately for execution services and research in respect of any issuer, irrespective of market capitalisation. This reform restores bundling as a genuine commercial option rather than a limited exception.
Where a firm chooses a joint payment model, it must agree a remuneration methodology with the research and execution provider, explain its payment approach to clients and make available its policy on payments for execution services and research. The firm must also assess annually the quality, usability and value of the research and its contribution to investment decision-making. Where a firm chooses not to use a joint payment model, research must continue to be paid for either from the firm’s sown resources or through a separate research payment account controlled by the firm.
New EU framework for issuer-sponsored research
The Listing Act Directive separately seeks to establish an EU framework for issuer-sponsored research. Issuer-sponsored research is research that is funded, in whole or in part, by the issuer that is the subject of the research. The new regime introduces a number of measures designed to enhance transparency and investor confidence In particular, research produced by investment firms or third parties and used or distributed by investment firms must be fair, clear and not misleading, and must be clearly identifiable es “issuer-sponsored research”. ESMA is required to develop an EU code of conduct setting standards on independence, objectivity and conflicts of interest. In addition, issuers may submit issuer-sponsored research to a designated EU collection body, increasing its accessibility to investors.
Transposition and key dates
The Listing Act Directive required Member States to adopt and publish the measures necessary to comply with the Directive by 5 June 2026, with the amendments applying from 6 June 2026. The related Commission Delegated Directive (EU) 2026/374, which provides the detailed rules governing payment arrangements for research and execution services, is subject to the same transposition timetable. The Irish transposing measures had not yet been adopted.
Practical implications for firms
Pending transposition of the Listing Act Directive and the related Delegated Directive into Irish law, firms should consider the potential impact of the reforms and assess the changes that may be required, including:
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whether their current research payment model remains appropriate;
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whether client disclosures and internal policies require updating;
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how annual quality assessments will be conducted and documented;
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what criteria will be used to evaluate research providers; and
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the governance and budgeting requirements for RPAs.
Footnote
1 Directive (EU) 2024/2811
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
