Title: MiFID II, with confounding COVID-19, and its effects on opaque financial intermediaries: dynamics between sell-side and buy-side brokerage firms in the European market

Authors: Fei Gao; Chu Yeong Lim

Addresses: Singapore Institute of Technology, SIT@Dover, 10 Dover Drive, 138683, Singapore ' Nanyang Technological University, 50 Nanyang Avenue, 639798, Singapore

Abstract: MiFID II is a regulation implemented to mitigate against analyst conflict of interest by unbundling research services from commission revenues. Our study contributes to the literature by introducing a theoretical framework in rational optimisations from the brokerage firms' perspective in reaction to MiFID II from market opacity and marginal costs for coverage. Our empirical results suggest that after MiFID II (from 2018 to 2023), the coverage from non-EU sell-side and non-EU buy-side/independent brokerage firms decreased significantly, compared to the pre-MiFID II (from 2014 to 2017). Post-MiFID II, EU buy-side/independent brokerage firms increased their coverage relative to non-EU peers. Furthermore, EU brokerage firms issued more positive and neutral, where large investment banks headquartered in EU significantly reduced their negative and neutral recommendations. We study the impact of the COVID-19 pandemic and observe that EU sell-side and non-EU buy-side/independent broker coverage increased, indicating a reversal of the trend pre-COVID-19 post MiFID II.

Keywords: regulation; brokerage; investment banking.

DOI: 10.1504/IJBAAF.2025.151879

International Journal of Banking, Accounting and Finance, 2025 Vol.15 No.3, pp.240 - 277

Accepted: 15 Mar 2025
Published online: 24 Feb 2026 *

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