Listing Act: reversing MiFID II's unbundling regime – is it enough?

The Listing Act, which entered into force on 4 December 2024, has rolled back certain strict requirements introduced by MiFID II, by reallowing joint payments for investment research and execution services. The so-called 'unbundling regime', introduced under MiFID II, has been under scrutiny from the outset. It has marked a significant shift in the way investment research is provided and paid for by investment firms, contributing to a noticeable decline in the volume of investment research. With the Listing Act, the EU aims to mitigate the impact of MiFID II and promote broader research coverage, thereby reshaping the regulatory landscape once again. As years have passed however, the market has evolved in response to MiFID II, which has embedded changes that may be difficult to reverse. This raises the question whether the reforms under the Listing Act are arriving too late to undo these structural shifts in a meaningful manner. 

This article – the fifth in a series on key changes introduced by the Listing Act – explores the background of the unbundling framework, its practical implications, and the potential of the 'rebundling' efforts under the Listing Act. 

The introduction of the unbundling regime

Since its implementation in 2018, MiFID II (Directive 2014/65/EU) has compelled the separation of payments for research from those for execution services, aiming to enhance cost transparency and reduce potential conflicts of interest. Firms providing both services were required to separately identify the cost of research, effectively 'unbundling' these costs from the costs of other services. Prior to MiFID II, investors could access analyst research at no direct cost, as the entities providing both research and execution services would typically bundle the costs. Sell-side firms would provide such research seemingly free of charge, but in reality it would often be funded by inflated execution fees. Since orders must be executed on the most favourable terms for clients under MiFID II, the research unbundling regime aimed to improve transparency, address potential conflicts of interest arising from such bundled packages, and stimulate the growth of independent investment research providers. Additionally, the unbundling provisions intended to reduce costs for investors by limiting an oversupply of low-quality research, which in some cases resulted from providers striving to meet or exceed perceived client demand for analyst research.

Practical consequences and developments

While the policy rationale behind the unbundling framework appeared sound, its practical impact proved damaging. The market for research changed significantly, as the demand for and, consequently, the overall supply of analyst research reduced. Studies indicate that, since the implementation of MiFID II, investment research coverage for SMEs has declined – and in some cases disappeared entirely – whilst coverage for larger issuers has also reduced. In the Netherlands, for example, domestic issuers were previously mainly covered by analysts of local brokers. After the introduction of the unbundling regime, a study shows that research activity increasingly shifted to larger international research firms, leading to a more rapid decrease in the availability of SME coverage. The resulting information gaps have made it more costly and therefore less attractive to invest in Dutch SMEs.

Recognising these trends, the EU introduced an amendment in 2021 as part of the Capital Markets Recovery Package, allowing entities to bundle payments for execution services and research covering issuers with a market capitalisation under EUR 1 billion. By making research on SMEs more cost-effective for research firms, the change specifically aimed to revitalise the coverage of SMEs. Nonetheless, its overall impact was limited as the decline in investment research did not slow down. 

'Rebundling' through the Listing Act

The Listing Act builds on earlier reforms by abolishing the EUR 1 billion threshold, thereby allowing for joint payments for execution services and research for any issuer, irrespective of its market capitalisation. This 'rebundling' measure aims to revert the damaging consequences of MiFID II and revitalise the market for investment research, particularly for SMEs, by improving issuer visibility and consequently attracting more investors. 

The Listing Act allows for joint payments, provided that certain conditions are fulfilled. In short, a firm wishing to benefit from the option to bundle payments must:

• inform its clients whether or not it applies a joint payment method for execution services and research;
• establish a policy on research payments, including what information is available to clients and explaining how it prevents or manages conflicts of interest, and make such policy available to its clients;
• enter into an agreement with the third-party provider that establishes a remuneration methodology which prevents overpayment for research and ensures compliance with its best execution requirements;
• annually assess the quality, usability and value of research used; and
• where known, keep a record of the total costs for research provided by third parties. 

Member States must implement the changes introduced by the Listing Act by 5 June 2026. In the Netherlands the changes will likely be implemented in the Decree on Conduct of Business Supervision of Financial Undertakings.

Too late to shift the tide?

A key question is whether these rebundling efforts have come too late to revive a market that has already adapted to MiFID II. Over time, market participants have reshaped their research processes. For instance, buy-side firms have expanded their internal research capabilities to reduce their reliance on third-party research. In turn, many sell-side entities have divested or downsized their research departments, leading to structural shifts across the industry. Whilst the Listing Act provides long-sought flexibility in the organisation of research and execution costs, critics remain sceptical and fear that these reforms may not be able to rectify the damage done by the earlier, more rigid regime. The amendments in any case signal a renewed policy effort by the EU to improve research coverage and enhance the attractiveness of the capital markets. Nevertheless, it remains uncertain whether the rebundling initiative can actually restore research coverage and reverse the established structural changes on any meaningful scale.