MiFID II | European Securities and Markets Authority (2024)

FAQs

What is MiFID II for dummies? ›

MiFID II regulates off-exchange and over-the-counter trading, essentially pushing it onto official exchanges. Increasing transparency for trading costs and improving record keeping for transactions are among the key aims of the regulations.

Known as 'MiFID II' (markets in financial instruments directive), it aims at making financial markets in the European Union (EU) more robust and transparent. It creates a new legal framework that better regulates investment and trading activities on financial markets and enhances investor protection.

Execution costs are then separately regulated by “best execution” rules. The scope of MiFID II's territorial reach means that it will only apply directly to U.K. and EU-regulated investment firms.

The European Securities and Markets Authority (ESMA) is an independent EU authority whose purpose is to improve investor protection and promote stable, orderly financial markets.

The Bottom Line. MiFID, or the Markets in Financial Instruments Directive, was a set of European regulations governing equities markets in the European Union. It was intended to enhance transparency and reporting requirements to protect European investors.

MiFID II requires investment firms to take all appropriate steps to identify and prevent or manage conflicts of interest that arise in the course of providing any investment and ancillary services.

The MiFID II client categorisation is a framework that classifies clients of investment firms into three categories: eligible counterparties, professional clients, and retail clients.

The European Union's mission of creating a single market across its member states was extended to the financial services industry in November 2007 with the publication of the Markets in Financial Instruments Directive (MiFID).

Given the international reach and inter- connectedness of global financial markets, it comes as no surprise that the legislation's impact extends beyond the EU (including the EEA) to other regions, such as Asia-pacific and North America, where firms either provide or receive services from EU financial counterparties.

Does MiFID apply to the US? ›

The scope of MiFID II's territorial reach means that it will only apply directly to U.K. and EU-regulated investment firms.

Generally speaking, collective investment undertakings are specifically exempt, as are their depositaries and managers. For collective investment undertakings within the scope of the UCITS Directive or AIFMD the "manager" corresponds to the management company or AIFM of the undertaking.

ESMA has direct supervisory responsibilities with regards to specific market players such as non-EU CCPs, credit rating agencies, EU critical benchmarks and their administrators, DRSPs, trade repositories and securitisation repositories.

ESMA supervises all EU CRAs, TRs and SRs, certain DRSPs, certain benchmark administrators and Tier 2 third-country CCPs. NCAs supervise all other market actors.

And, because of that, it is effectively creating a new framework for regulation based on three principle pillars: Best execution, information to clients, and surveillance. Limits, monitoring and controls.

MiFID II governs the provision of investment services in financial instruments. It applies to investment firms, wealth managers, broker dealers, product manufacturers and credit institutions authorised to carry out MiFID activities.

MiFID II sets out to: Ensure trading takes place on regulated platforms. Draw up rules on algorithmic and high-frequency trading. Increase transparency and oversight of financial markets and address shortcomings in commodity derivatives markets.

The overarching Mifid II best execution obligation requires firms to take all sufficient steps to obtain the best possible result, taking into account a range of execution factors, when executing client orders or placing orders with (or transmitting orders to) other entities to execute.