MiFID Overview

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The goal of MiFID / MiFID II / MiFIR is to create an intergrated market in Financial Services within the EU.

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An Investment Firm registered in one EU country has unfettered access to other EU markets; the EU Passport.

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This requires that all Investment Firms meet certain minimum standards so that investors in the EU markets are not exposed to sub-standard services or malpractices.

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MiFID-I Themes

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1. Conduct of Business: shall always be in the best interests of the client.

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2. Full Disclosure: Firms must give complete information on products, costs, risks, performance data etc.; and not engage in misleading communication in marketing.

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3. Client Classification: Firms must categorise customers as Retail, Professional and Eligible Counterparties: and make suitability and appropriateness assessments.

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4. Client Assets Protection and Segregation.

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5. Best Execution: Firms must execute client orders at best possible prices among markets it trades on; and prove so if asked.

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6.Order Execution arrangements need to conform to stated policy.

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7. Prohibition on Inducements to customers: nothing to wrongfully influence investment decisions.

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8. Market Transparency: Pre- and Post-Trading reporting is mandatory; across markets and trading platforms.  

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9. Organisation Processes, Methods & Risk Controls must be sufficient to support MiFID principles and compliance.

 

MiFID-II / MIFIR Themes:

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1. Market Transparency regime established under MiFID-I is extended to all products, asset classes.

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2. Rules governing algorithmic trading and dark pools are now included.

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3. Position limits imposed on Commodity Trading.

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4. Trade Reporting acquires still greater importance: with extension to more products; more trading platforms.

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5. Payment for Research: Sell-side firms must not induce customers to trade by bundling research with execution services.