MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE II - MiFID II
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU
Date of entry into force
2 July 2014
Date that the rules apply
3 January 2018 (extended from 3 January 2017)
WHAT IS THE AIM OF THE DIRECTIVE?
- It aims at making financial markets in the European Union (EU) more robust and transparent.
- It creates a new legal framework that better regulates trading activities on financial markets and enhances investor protection. The new rules, called ‘MiFID 2’, revise the legislation currently in place and will apply from January 2018.
Ensuring financial products are traded on regulated venues
The aim is to close loopholes in the structure of financial markets. A new regulated trading platform is established to capture a maximum of unregulated trades. This is the so-called Organised Trading Facility (OTF), which will exist alongside existing trading platforms such as regulated markets.
The rules strengthen the transparency requirements that apply before and after financial instruments are traded, for instance when market participants have to publish information regarding the prices of financial instruments. These requirements are calibrated differently depending on the type of financial instrument.
Limiting speculation on commodities
Speculation on commodities - a financial practice that can lead to the prices of basic products (such as agricultural products) soaring - is restricted by introducing a harmonised EU system setting limits on the positions held in commodity derivatives. National authorities may limit the size of a position that market participants can hold in commodity derivatives.
Adapting rules to new technologies
Under the new rules, controls must be established for trading activities which are performed electronically at a very high speed, such as ‘high-frequency trading’ (a type of trading which uses computer programs to perform trades at high speed using rapidly updating financial data). Potential risks from increased use of technology are mitigated by a combination of rules aiming to ensure these trading techniques do not create disorderly markets.
Reinforcing investor protection
Investment firms should act in accordance with the best interests of their clients when providing them with investment services. These firms should safeguard their clients’ assets or ensure the products they intend to launch are designed to meet the needs of final clients. Investors will also be provided with increased information on products and services offered or sold to them. Moreover, firms must ensure that staff remuneration and performance assessments are not organised in a way that goes against clients’ interests. For instance, this may happen when remuneration or performance targets provide an incentive for staff to recommend a particular financial product instead of another that would better meet clients’ needs.
- In April 2016, the European Commission adopted a delegated directive which deals with aspects of investor protection:
- safeguarding clients’ funds and financial instruments;
- product governance (this ensures that firms which manufacture and distribute financial instruments and structured deposits act in their clients’ best interests); and
- monetary and non-monetary compensation.
- It also adopted a delegated regulation on organisational requirements and operating conditions for investment firms.
- Implementing Regulation (EU) 2016/824 lays down technical standards for the description of the functioning of multilateral trading facilities and organised trading facilities and the notification to the European Securities and Markets Authority (ESMA).
FROM WHEN DOES THE DIRECTIVE APPLY?
It applies from 3 January 2018 (i.e. postponed by one year by Directive (EU) 2016/1034). EU countries have to incorporate it into national law by 3 July 2017.
For more information, see:
- Updated rules for markets in financial instruments: MiFID 2 on the European Commission’s website.
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast) (OJ L 173, 12.6.2014, pp. 349-496)
Successive amendments to Directive 2014/65/EU have been incorporated in the original text. This consolidated version is of documentary value only.
Commission Delegated Directive (EU) 2017/593 of 7 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits (OJ L 87, 31.3.2017, pp. 500…517)
Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (OJ L 87, 31.3.2017, pp. 1…83)
Commission Implementing Regulation (EU) 2016/824 of 25 May 2016 laying down implementing technical standards with regard to the content and format of the description of the functioning of multilateral trading facilities and organised trading facilities and the notification to the European Securities and Markets Authority according to Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (OJ L 137, 26.5.2016, pp. 10-16)
Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, pp. 84-148)
See consolidated version.