Markets in Financial Instruments Directive (MiFID)
The Markets in Financial Instruments Directive (MiFID I) is European Union (EU) legislation which applies to investment companies that provide investment services or financial instruments to clients. These instruments include shares, bonds, units in collective investment schemes and derivatives. The aim of MiFID is for all EU member states to provide a harmonised robust regulatory framework that protects investors.
Improvements to MiFID
In 2011, the European Commission announced improvements and changes to MiFID. The changes included an updated Directive (Directive 2014/65/EU, MiFID II) and a new Markets in Financial Instruments Regulation (MiFIR), collectively known as MiFID II. The introduction of MiFID I was seen as a success in moving the single market forward, providing better protection for investors and reducing the costs of trading financial instruments. As a result the European Commission wanted to make additional improvements to the existing framework by addressing weaknesses highlighted by the financial crisis.
The Commission set out four main objectives for MiFID II that builds on the success of MiFID I. These are to:
- strengthen investor confidence
- reduce the risks of market disruption
- reduce systemic risks; and
- increase the efficiency of financial markets and reduce unnecessary costs for participants.
MiFID II aims to strengthen the current European rules in the financial markets by:
- ensuring that EU trading venues where trading in financial instruments takes place are regulated;
- introducing rules on algorithmic and high frequency trading;
- improving the transparency and oversight of financial markets, including derivatives markets;
- addressing some issues in commodity derivatives markets; and
- strengthening investor protection by introducing new requirements relating to the organisation and conduct of investment firms in these markets.
MiFID II sets out requirements relating to:
- disclosure of relevant transactions in financial instruments to the public and to regulators;
- mandatory trading of in-scope over-the-counter (OTC) derivatives on trading venues;
- removal of barriers between trading venues and providers of clearing services to ensure more competition; and
- specific supervisory powers regarding financial instruments and positions in derivatives.
This is intended to provide basic information regarding certain aspects of EMIR and/or MiFID II and does not cover all aspects of EMIR and/or MiFID II nor address specific requirements or obligations of either party in connection with them. No part of this document is intended to be advice (legal or otherwise) by Lloyds Bank plc, Lloyds Bank Corporate Markets plc or Bank of Scotland plc on EMIR and/or MiFID II, or rules and regulations promulgated as a result thereof. Recipients should conduct their own independent enquiries and obtain their own professional, legal, regulatory, tax or accounting advice as appropriate. Neither Lloyds Bank plc, Lloyds Bank Corporate Markets plc nor Bank of Scotland plc accepts liability for the content of this page, or for the consequences of any actions taken on the basis of the information provided. We recommend clients obtain their own advice to assist them in understanding how EMIR and/or MiFID II will impact their business.