Was MiFID II effective in unbundling execution and research services

The European Commission passed Markets in Financial Instruments Directive II (MiFID II), in part, to unbundle brokers’ execution and research services. We empirically examine the effectiveness of MiFID II in achieving this goal and find that the trading volume generated by the brokers that issued recommendation revisions declined significantly after the enactment of MiFID II. In contrast, the aggregate trading volume response to revisions remained the same. Further, we find that the value of recommendation revisions did not change while forecast accuracy and bias improved. Finally, we evaluate the potentially asymmetric effect of MiFID II on brokers and independent research providers and find evidence suggesting that MiFID II helped level the playing field. These results, collectively, suggest that MiFID II was effective in separating research and execution services and leveling the playing field without significantly hurting the quality of sell-side equity research.