MiFID II

What is MiFID II?

MiFID II is the revision of the Markets in Financial Instruments Directive (MiFID), originally published in 2004. It is the foundation of financial legislation for the European Union, designed to assist traders, investors, and other participants in the financial sector. The primary goal of MiFID II is to keep financial markets strong, fair, effective, and transparent.

History of the MiFID

The original MiFID was established in 2004. It became effective across the entirety of the European Union in 2007. Since its inception, the legislation’s been used as a tool to help create unified and fair financial markets in the EU. The MiFID includes several important directives:

1. Outlines the requirements necessary to regulate trade markets
2. Provides codes of conduct and operational requirements for investment institutions
3. Mandates transparency for all trades
4. Indicates the rules and processes to be followed in the event of financial or operational abuse of financial markets
5. States the rules for trade instruments’ admission into the trading arena

At the end of 2011, the European Commission – which established and oversaw the original MiFID – created a proposal for revisions to the MiFID, a proposal that resulted in the MiFID II after more than two years of debate, rebuttals, and negotiations. The EU Parliament and the EU Council voted to uphold the final set of revisions, and the MiFID II was published officially in mid-2014.

Who and What the MiFID II Covers

The simple answer to who and what the MiFID II covers is: everyone and everything within the financial community.

To break it down further, the MiFID affects:

• Funds and fund managers
• All trading exchanges
• Banks and bank managers
• Any venues for trading
• Pension funds
• Traders
• Brokers
• Investors

The other primary concern is the markets that the MiFID II addresses, which are:

• Fixed income
• Equities
• Futures
• Exchange-traded goods
• All retail derivatives

Final Word

MiFID II – the revision of the original – was intended to make the rules and regulations surrounding financial markets in the EU clearer and more effective. Greater transparency was also a significant concern. Perhaps the most important reasons for the creation of MiFID II are the revisions made to fall in line with ever-growing and changing technology.

Related Readings

To keep learning and advancing your career, the following CFI resources will be helpful:

• Bank for International Settlements (BIS)
• Basel III
• LIBOR
• Sarbanes Oxley Act
• See all capital markets resources
• See all risk management resources