MiFID II Series
In the year since its introduction, the second Markets in Financial Instruments Directive (MiFID II) has triggered structural changes and operational challenges in EU markets. On the structural side, there are now many more Organised Trading Facilities (OTFs) and Systematic Internalisers (SIs); some business such as in commodity derivative contracts has relocated from EU to US venues; and the market’s microstructure is altering (e.g. periodic auction and RFQ systems).
MiFID II (came into effect on 3 January 2018) is set to disrupt the production and distribution of investment research, impact execution services and ultimately the costs for investment firms and end-investors. Brokers have to establish a price for investment research separately from execution services. Asset management firms need to develop research budgets for all asset classes, and either pass the costs of research on to clients or absorb the costs themselves. Nonetheless, this will lead to new opportunities for investors to better compare price and quality across products and service levels.
With the aim of improving investor protection, MiFID II takes a firmer stance by imposing new/additional requirements in several areas, including dealings with eligible counterparties, suitability and appropriateness, inducements, conflicts of interest and cross-selling practices in the financial sector. The implementation of these requirements poses multiple challenges for both financial service providers and investors.
How the financial industry and supervisors deal with the new regulatory framework for data (obligation to supply financial instruments reference data, pre- and post-trade transparency, transaction reporting, best execution, consolidated tape etc.) will largely determine the transition to a MiFID II-compliant environment. The volume and nature of the data to be processed, the complexity of the analytical processes, and stringent reporting requirements present great challenges ahead.
Under MiFID I transparency requirements were limited to equity instruments. MiFID II substantially expanded the scope of this transparency to cover also non-equity instruments. The full list includes shares; depositary receipts; exchange traded funds; certificates and similar instruments (equity-like instruments); bonds; structured finance products; emission allowances and traded derivatives (non-equity instruments). Such instruments can be traded not only on regulated markets (RMs), but also to multilateral trading facilities (MTFs), organised trading facilities (OTFs), and Systemic Internalisers (SIs). It remains to be seen how and to what extent the new transparency requirements will affect the current market structure.
The European Capital Markets Institute (ECMI) invites industry representatives, policymakers, investor associations, academics and other interested stakeholders to take part in a series of special events on the topic of MiFID 2/MiFIR to discuss the readiness of market players and the supervisory community to comply with the provisions set out in new legislative framework.