What is MiFID II and how will it affect your firm?
The Markets in Financial Instruments Directive (MiFID) came into force in November 2007, as part of the European Single Market program to remove barriers to cross-border financial services within Europe, foster a competitive and level playing field between European Economic Area (EEA) trading venues for financial instruments, and ensure appropriate levels of financial service consumer/investor protections across the EEA.
MiFID II: preparing for fundamental change
Extending the transparency regime that was created for equity instruments in the original directive, MiFID II will apply from January 2018. It represents a fundamental change for financial markets across a multitude of areas, requiring not only major implementation effort but also a re-assessment of business models.
The original MiFID led to a major shift in the cash equity markets and MiFID II will have an even more pronounced impact. It will dramatically change almost the entire marketplace as we know it today, with far-reaching effects on everyone engaged in the dealing and the processing of financial instruments.
No business or operating model – especially in the over-the-counter (OTC) space – is likely to remain untouched. In particular, MiFID II will completely change the way almost all OTC products are priced, traded and reported, and also bring further changes to the exchange-traded equity market.
The high level goals of MiFID II are:
- Increased transparency of markets
- A shift in trading towards more structured marketplaces
- Lower cost market data
- Improved best execution
- Orderly trading behaviour within markets
- More explicit costs of trading and investing
What does this mean for your business?
MiFID II will affect brokers, dealers, trading venues, hedge funds, asset managers, and global corporations to varying degrees.
It’s also important to note that while this directive is driven by European regulators, it will nonetheless have a global impact. The capital markets are increasingly global, so it’s impossible to contain regulation within geographic boundaries. When Asian and American firms do business with European customers, MiFID II will necessarily impact those interactions.
Depending on the scope of your operations and nature of your business, you will have to:
- Report trades to the local regulator
- Trade certain derivatives on regulated trading venues
- Publish quotes and post-trade information for trading activity across most asset classes
- Perform more extensive testing of your trading algorithms
- Produce annual reports to assess the quality of executions on the trading venues you use most often
- Make separate payments for dealing commissions and broker research
- Comply with position limits and reporting obligations on commodity derivatives
How we can help
MiFID II will command significant changes in business and operating models, systems, data, people and processes and fundamental transformation will emerge.
At Thomson Reuters, we have the content, technology and expertise to help you meet this challenge, as well as take advantage of the market opportunities and potential for competitive advantage that the regulation undoubtedly offers.
As well as outlining the obligations and impact this directive’s requirements will have on your firm, these pages will identify relevant solutions that will enable you to comply and compete with confidence.