MiFID 2: EP and Council Reach In Principle Agreement

Chetcuti Cauchi | Published on 01 Feb 2014

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On the 14th of January 2014, Commissioner Michel Barnier welcomed the agreement reached in trilogue on updated rules for markets in financial instruments. The update to the existing framework, referred to as Markets in Financial Instruments Directive 2 (MiFID 2) is intended to improve market transparency and to improve investor protection, as well as to bring the existing regulatory framework up to speed with recent technological innovation.

The key elements of the agreement are the following:

  • The introduction of  a market structure framework that ensure that trading, where appropriate, takes place on regulated platforms. It further ensures that investment firms operating an internal matching system which executes clients orders in shares, exchange traded funds or other similar financial instruments on a multilateral basis have to be authorised as a Multilateral trading facility (MTF). It also introduces a new multilateral trading venue, the Organized Trading Facility (OTF), for non-equity instruments to trade on organized multi-lateral trading platforms. 

  • MiFID II increases equity market transparency and introduces a principle of transparency for non-equity instruments such as bonds and derivatives. MiFID II also broadens the pre- and post-trade transparency regime to include non-equity instruments, although pre-trade transparency waivers are available for large orders, request for quote and voice trading. 

  • Strengthened supervisory powers and a harmonized positions limit regime for commodity derivatives. Authorities will therefore impose position limits in accordance with a methodology for calculation set by ESMA

  • Improve conditions with respect to trading and clearing of financial instruments. 

  • MiFID II introduces controls for algorithmic trading activities. These safeguards include the requirement for all algorithmic traders to be regulated, and to provide liquidity when pursuing a market making strategy.

  • Stronger investor protection is expected, thanks to the introduction of various requirements relating to organization structure,  in addition to strengthened conduct of business rules which extend the scope of appropriateness testing. 

  • There are provisions which strengthen the existing regime to ensure effective and harmonized administrative sanctions

  • Access to 3rd country firms, based on an equivalence assessment of third country jurisdictions by the Commission. The regime applies only to cross-border provision of investment services and activities provided to professional and eligible counterparties. 

Our firm is closely following developments in the area, and will be publishing more detailed analysis of the various innovations and changes introduced by MiFID 2.

 



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