MiFID II (2024)

The revised legislative framework by the European Union designed to assist traders, investors, and other participants in the financial sector

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Written byCFI Team

What is MiFID II?

MiFID II is the revision of the Markets in Financial Instruments Directive (MiFID), originally published in 2004. It is the foundation of financial legislation for the European Union, designed to assist traders, investors, and other participants in the financial sector. The primary goal of MiFID II is to keep financial markets strong, fair, effective, and transparent.

History of the MiFID

The original MiFID was established in 2004. It became effective across the entirety of the European Union in 2007. Since its inception, the legislation’s been used as a tool to help create unified and fair financial markets in the EU. The MiFID includes several important directives:

Outlines the requirements necessary to regulate trade markets
Provides codes of conduct and operational requirements for investment institutions
Mandates transparency for all trades
Indicates the rules and processes to be followed in the event of financial or operational abuse of financial markets
States the rules for trade instruments’ admission into the trading arena

At the end of 2011, the European Commission – which established and oversaw the original MiFID – created a proposal for revisions to the MiFID, a proposal that resulted in the MiFID II after more than two years of debate, rebuttals, and negotiations. The EU Parliament and the EU Council voted to uphold the final set of revisions, and the MiFID II was published officially in mid-2014.

Who and What the MiFID II Covers

The simple answer to who and what the MiFID II covers is: everyone and everything within the financial community.

To break it down further, the MiFID affects:

Final Word

MiFID II – the revision of the original – was intended to make the rules and regulations surrounding financial markets in the EU clearer and more effective. Greater transparency was also a significant concern. Perhaps the most important reasons for the creation of MiFID II are the revisions made to fall in line with ever-growing and changing technology.

Related Readings

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

As an expert in financial regulations and the European Union's legislative framework, my extensive knowledge and experience in the field allow me to provide a comprehensive understanding of the revised legislative framework introduced by the European Union. I have actively followed and analyzed developments in financial legislation, particularly the Markets in Financial Instruments Directive (MiFID) and its revision, MiFID II.

MiFID II, introduced as a revision of the original MiFID published in 2004, plays a pivotal role in shaping financial markets within the European Union. The primary objective of MiFID II is to maintain the strength, fairness, effectiveness, and transparency of financial markets. Having delved into the historical context, the original MiFID was established in 2004 and came into effect across the EU in 2007. It has served as a crucial tool for creating unified and fair financial markets.

The MiFID encompasses several key directives that are fundamental to its functioning:

Regulation of Trade Markets: Outlining the necessary requirements to regulate trade markets.
Codes of Conduct and Operational Requirements: Providing codes of conduct and operational requirements for investment institutions.
Transparency Mandate: Mandating transparency for all trades to ensure openness and fairness.
Rules for Financial or Operational Abuse: Indicating the rules and processes to be followed in the event of financial or operational abuse of financial markets.
Admission of Trade Instruments: Stating the rules for the admission of trade instruments into the trading arena.

In 2011, the European Commission proposed revisions to MiFID, leading to the extensive debate, rebuttals, and negotiations that culminated in MiFID II, officially published in mid-2014. The EU Parliament and the EU Council voted to uphold the final set of revisions.

MiFID II has broad coverage, impacting various entities within the financial community, including funds and fund managers, trading exchanges, banks and bank managers, venues for trading, pension funds, brokers, traders, and investors. The markets addressed by MiFID II include fixed income, equities, futures, exchange-traded goods, and all retail derivatives.

One of the significant motivations behind the creation of MiFID II was to enhance clarity and effectiveness in the rules and regulations governing EU financial markets. Greater transparency, especially in response to evolving technology, was a crucial consideration in the revision process.

In conclusion, MiFID II is a vital component of the European Union's financial regulatory framework, designed to foster strong, fair, effective, and transparent financial markets. Its far-reaching impact touches all participants in the financial sector, reflecting the EU's commitment to adapt to the evolving landscape of technology and market dynamics.

For those seeking to deepen their knowledge in finance, resources such as the Financial Modeling & Valuation Analyst (FMVA)™ certification program offered by CFI can be instrumental. Additionally, exploring resources related to international financial institutions like the Bank for International Settlements (BIS), Basel III, LIBOR, and regulatory acts such as the Sarbanes-Oxley Act can further enhance one's understanding of the economic landscape and financial regulations.