MiFID II Definition Regulations Who It Affects and Purpose
MiFID II is a crucial financial legislation enacted by the European Union (EU) in 2018. Its purpose is to regulate financial markets and increase investor protections, aiming to standardize financial practices and restore industry confidence after the 2008 financial crisis.
Key Takeaways:
– MiFID II is EU legislation that came into effect in 2018.
– It covers all aspects of the EU financial services industry.
– The regulations push off-exchange and over-the-counter trading onto official exchanges.
– The regulations aim to increase transparency for trading costs and improve record keeping.
Understanding MiFID II:
– MiFID II amends the original Markets In Financial Instruments Directive (MiFID) from a decade ago.
– It rolled out on Jan. 3, 2018, setting goals for transparency in member states.
– MiFID II standardizes oversight of the financial industry among member nations.
– It extends reporting requirements and transparency to more financial instruments.
– Equities, commodities, debt instruments, futures and options, exchange-traded funds, and currencies are all covered.
– MiFID II applies to all professionals working in the EU financial services industry.
MiFID and MiFID II: Key Differences:
– MiFID largely applied to equities markets, with 73 articles.
– It was in force from 2007 to 2018 and did not address dealings with firms or products outside the EU.
– MiFID II applies to all types of securities and derivatives, with 97+ articles.
– It has been in force since 2018 and applies to any firms wanting to access and trade in EU products, regardless of location.
Key Regulations of MiFID II:
– MiFID II moves trading from OTC and dark pools to regulated platforms.
– It introduces organized trading facilities and requires investment firms to be multilateral trading facilities.
– MiFID II limits the trading volume of a stock in a dark pool to 8% to increase transparency.
– The legislation focuses on transparency in costs, quality of research, fair competition, and investor protection.
– Investment firms must report transactions and keep records of all communications.
– MiFID II places greater scrutiny on algorithmic and high-frequency trading to improve transparency and prevent manipulation or abuse.
What’s Next For Financial Regulations After MiFID II?
– A review of MiFID II’s effects on EU financial markets began in 2020.
– Changes to increase transparency and ban conflicts of interest are being finalized.
– Consolidated data feeds, banning payments for order flow, and emergency measures are among the proposed changes.
What Is a Dark Pool?
– Dark pools are private asset exchanges that provide liquidity and anonymity for trading large blocks of securities.
– They offer advantages to buy-side institutions, but lack transparency and can be susceptible to conflicts of interest and predatory trading practices.
What Is the US Equivalent of MiFID?
– Comparable federal rules in the US include the 1934 Securities Exchange Act, the 1998 Regulation Alternative Trading System, and the 2005 Regulation National Market System.
How Did Brexit Change MiFID II in the UK?
– Post-Brexit, the UK no longer needed to align with EU regulations.
– The UK initially incorporated much of MiFID II into its law for continuity and stability.
– The UK is now pursuing sustainable deregulation while aiming to remain aligned with global standards.
The Bottom Line:
– MiFID II brought significant changes to EU financial securities trading.
– Key policies include increased transparency, diminished OTC and dark pool trading, and the end of legalized conflicts of interest.
– MiFID II also introduced greater scrutiny for algorithmic trading, aligning it with transparency and fairness requirements.
