• Markets in Financial Instruments Directive (MiFID)


    Explaining MiFID

    The Markets in Financial Instruments Directive (MiFID) is European Union (EU) legislation which applies to investment companies that provide investment services or financial instruments to clients. These instruments include shares, bonds, units in collective investment schemes and derivatives. The aim of MiFID is for all EU member states to share the same robust regulatory framework that protects investors.

    Improvements to MiFID

    In 2011, the European Commission announced improvements and changes to MiFID. The changes included an updated Directive and a new Regulation, which together are known as MiFID II. The introduction of MiFID was seen as a success in moving the single market forward, providing better protection for investors and reducing the costs of trading financial instruments. As a result the European Commission wanted to make additional improvements to the existing framework by addressing weaknesses highlighted by the financial crisis.

    The Commission set out four main objectives for MiFID II that builds on the success of MiFID I. These are to:

    • strengthen investor confidence
    • reduce the risks of market disruption
    • reduce systemic risks
    • increase the efficiency of financial markets and reduce unnecessary costs for participants.

    MiFID II aims to strengthen the current European rules in the financial markets by:

    • ensuring that EU trading venues where trading in financial instruments takes place are regulated
    • introducing rules on algorithmic and high frequency trading
    • improving the transparency and oversight of financial markets, including derivatives markets
    • addressing some issues in commodity derivatives markets
    • strengthening investor protection by introducing new requirements relating to the organisation and conduct of investment firms in these markets.

    MiFID II sets out requirements relating to:

    • disclosure of relevant transactions in financial instruments to the public and to regulators
    • mandatory trading of in-scope over-the-counter (OTC) derivatives on trading venues
    • removal of barriers between trading venues and providers of clearing services to ensure more competition
    • specific supervisory powers regarding financial instruments and positions in derivatives.

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