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MiFID II Unbundling: Was it Successful?

The revised Markets in Financial Instruments Directive, known as MiFID II, requires the unbundling of research payments from trading execution. Using a difference-in-differences research design, we examine whether this regulation achieved its intended objective. We find that MiFID II weakened the link between the brokerage trading share and analyst research. Forecast frequency, optimism, and accuracy are less likely to be associated with the brokerage trading share after MiFID II. Analysts appear to respond to these changes. Forecast frequency and forecast optimism both decrease after MiFID II among brokers who earned the highest brokerage trading share due to these behaviors before MiFID II. Overall, our evidence suggests that MiFID II is at least partially successful in unbundling research from execution.