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Global Trustee and Fiduciary Services News and Views | MiFID II Special Edition 2016
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UNDERSTANDING MiFID II
MiFID II and MiFIR (the Markets in Financial Instruments Directive and Regulation, respectively)
will reform how securities are traded in Europe. The European Commission, with the help
of ESMA, has now drawn up the necessary technical rules to ensure the requirements under
MiFID II/MiFIR are understood and applied in the same way across the EU.
SAFER, MORE EFFICIENT MARKETS
MiFiD II is a comprehensive set of rules determining how securities in the EU — like shares,
bonds and derivatives — are traded, especially on trading platforms or stock exchanges.
It also sets the standards for investment services and how firms providing such services
or operating or acting on trading platforms are set up.
It will bring more trading of securities onto transparent trading platforms that treat investors
according to the same high standards, allowing for better and fairer price formation.
Loopholes such as dark-pool trading (trading without disclosing prices in real-time) are
no longer an option for regular trading. Instead, it will be available where needed to protect
investors or those providing liquidity to the markets.
Trading in commodity derivatives will be made more transparent and better organised by
limiting how big a position any investor can build up, and authorisation requirements will
be broadened.
Requirements to make electronic trading systems more robust and tighter authorisation
requirements will be introduced to keep pace with the increasing use of rapid and
computerised high-frequency trading. MiFID II should also stimulate competition in trading
and related services since the same security can be traded in different places. At the same
time, by encouraging the compilation of trading data in one place (consolidated tape), MiFID II
will make it easier to get the full picture of where to find the best deal.
BEST INTEREST OF THE CLIENT
When using the services of an investment firm, investors must trust that the service
is provided in the best interest of the client and not for other reasons (for example,
commissions received by the firm from third parties). So under MiFID II, inducements
are not allowed for portfolio management and independent advice and only permitted
in other cases where they enhance quality. Reporting to and cooperation between EU
supervisors as well as sanctions will be strengthened, and there will be one-stop shop
treatment (passport) for non-EU firms that want to access EU markets provided that
their home countries have equivalent frameworks.
These new rules should benefit the economy as a whole by improving the way that capital
markets work.
REFORMING THE TRADING LANDSCAPE
AND IMPROVING INVESTOR PROTECTION
MiFID II and MiFIR, in brief . . .