From January 3 2018, the date from which Financial Conduct Authority’s Muddlehead 2 (aka MiFID II) came into play, the world has changed for quoted companies, small caps especially. Now, if companies want to maintain stock market ratings that will enable them to raise funds, they need to apply their marketing skills to their company’s equity and debt as determinedly as they market their goods and services.
We are pleased with the spirit behind the FCA’s behemoth because it forces transparency and that was at the root of our thinking when we started ED. Sadly, though, it’s a dog’s dinner of regulation that puts all the fund-raising power in the hands of the big banks and, even though it helps us as independent paid-for research providers, we detest it for what it does to the vital Smaller Quoted Company (SQC) sector. SQCs are, or should be, the pinnacle of the small company world that is itself the backbone of the economy.
Now, just when we need SQCs most to survive and thrive, they have been sabotaged by Muddlehead. They are particularly vulnerable because individual investors now dominate registers in the SQC sector and, despite the handsome returns that are to be had, all but a few institutions have abandoned the sector, primarily because the sector is already under-researched.
Our advice to them is: first, try to ensure that your company’s share price reflects the company’s prospects, not just its present day value. And secondly, remember that to achieve that, means marketing to private investors much as they would sell to retail customers anywhere.
Economically, it’s a huge shame that investors are denied access to smaller companies. That's because we have an ageing population that needs to save to survive and the smaller company sector has not only performed well but the companies are entities with which people can identify.
Fortunately, all barriers can be overcome by responsible marketing and communication. Companies should get to know the experts in the small cap sector, including the QCA, and if we can help then do let us know.