The Markets in Financial Instruments Directive sets out rules for firms offering services to clients in connection with financial instruments within the European Economic Area. The rules dictate market structure in the EEA and are designed to offer greater protection for investors and transparency in the marketplace. Following the financial crisis, the European Union embarked on a significant revamp of the rules, which is known as Mifid II, and an accompanying regulation (Mifir) was introduced alongside the directive. These both came into force in January 2018. Despite the rules applying to EEA firms, foreign firms have found themselves indirectly caught by many of the obligations. The revamped rules expand the scope of the original requirements to non-equity instruments including derivatives and bonds. Requirements to publicly report details of quotes and trades – referred to as pre- and post-trade transparency – were extended to non-equity instruments, subject to certain parameters that permit banks to either waive or defer the publication of the information for illiquid instruments. Also extended to include derivatives and bonds is a so-called systematic internaliser designation, which is assigned to investment firms whose trading against their own capital crosses a market share threshold for the asset class. A third platform designation was also introduced – known as an organised trading facility – to capture trading systems that were not covered by the existing multilateral trading facility and regulated market definitions. The rules also implement an obligation for EEA firms to exclusively trade certain standardised derivatives on trading venues established in the EEA or on third-country trading venues recognised as equivalent. A similar obligation is also in place for shares that are listed or traded on EEA venues, but firms can also trade those shares on systematic internalisers. Equivalence arrangements have to be in place between the EU and a third-country firm’s jurisdiction for the firm to provide services into the EU under this directive.
MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE (MIFID)
