17 January 2014
Reforms to MiFID have been agreed in principle by the European Parliament (EP) and European Council (EC).
The reforms were initially proposed in October 2011 and aim for a ‘safer, more open and more responsible financial system’, as well as to ‘restore investor confidence’, according to a government statement.
MiFID II will see organised trading of financial instruments shift to multilateral and well-regulated trading platforms. This includes both equity and non-equity instruments. Shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments will be traded on a multilateral basis and will have to be authorised as a multilateral trading facility (MTF). Non-equity instruments will now be traded on a new multilateral trading venue, the organised trading facility (OTF).
These measures will increase transparency in the equity market and establish a principle of transparency for non-equity instruments such as bonds and derivatives, for the first time, according to the EC.
The reform also includes the introduction of trading controls such as an appropriate liquidity provision obligation for high-frequency traders pursuing market-making strategies and by regulating the provision of direct electronic market access.
The EC also states MiFID will harmonise the EU system, setting limits on the positions held in commodity derivatives curbing speculation on commodities while a framework for non-discriminatory access to trading venues and central counterparties, as well as to benchmarks for trading and clearing purposes will lead to improved competition and more effective, integrated and safe capital markets for the benefit of investors.
For greater investor protection, investment firms will have to meet stricter standards to ensure that investors can trust that they are being offered products which are suitable to them and that their assets are well protected.