Highlights of MiFID II

“MiFID II will notably change the way Europe’s secondary markets function. And this will no doubt impact market participants and regulators alike. The magnitude of this change should not be underestimated. But the past has taught us that change is needed in order to make markets more transparent, efficient, and safer to invest in. This will entail a certain cost but we should not forget the other side of this equation, which is the great benefits safer and sounder markets will bring to everybody.” Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA)

Markets in Financial Instruments Directive (MiFID II) and the accompanying regulation MiFIR is the latest in a series of new rules and regulations that govern electronic communications, regardless of type and where they occur.

Background of Markets in Financial Instruments Directive (MiFID)

The original Markets in Financial Instruments Directive (MiFID) was designed to be the foundation of the European Union (EU) regulation of financial markets and has been in place across since November 2007.

On 20 October 2011, the European Commission proposed a revision of MiFID. After more than two years of debate, a new directive and regulation, commonly referred to as MiFID II and MiFIR, was adopted by the European Parliament, the Council of the European Union and published in the EU Official Journal on 12 June 2014. MiFID II was originally designed to take effect on January 3, 2017. However, this deadline has been pushed back one year to January 2018 (as of July 2016) acknowledging the robust new requirements and the technical challenges faced by both firms and regulators.

These new rules are a response to changes in the trading environment since the implementation of MiFID in 2007 and the financial crisis. The goal of the new directive is to make the financial market more efficient, resilient, transparent and to protect the investor.

Who is Impacted by MiFID II?  

MiFID II impacts financial services firms undertaking business anywhere in the European Economic Area (‘the EEA’). Investment banks, private banks, asset managers, custodial services, retail banks, insurance firms, market infrastructure providers, and non-financial firms such as energy providers are impacted. The impact of MiFID II will be felt globally due to cross-border implications.

What about Brexit?

In June 2016, the UK voted to leave the European Union. We don’t expect a “bonfire of regulations”, however, there are bound to be changes in the coming months and years. However, in general, per the Financial Conduct Authority (FCA), existing EU rules still apply.

Summary

MiFID II will dramatically change the marketplace and impact nearly everyone involved in the dealing and processing of financial instruments. Investment firms will need to make changes to infrastructure, meet robust requirements for data reporting and broadened trade recording obligations, among many other issues.

There are market opportunities and competitive advantages for those who plan in advance, or potential revenue loss and reputational damage for those who fail to react. Let Actiance help you prepare for MiFID II now.

To learn more about MiFID II and how it may impact your firm, watch “Meeting MiFD II Requirements with Alcatraz”