MiFID II – Peace of Mind, and Increased Certainty and Confidence for Investors
MiFID II or the Markets in Financial Instruments Directive II is a set of modifications to the first Markets in Financial Instruments Directive (MiFID) that has been in effect since November 2007. The second Directive came into effect on 3rd January 2018.
What is MiFID?
MiFID or the Markets in Financial Instruments Directive is a regulation meant for increasing the transparency throughout the financial markets of the European Union and homogenizing the regulatory revelations needed for specific markets. The MiFID executed new measures, like pre- and post-trade transparency requirements and established the code of conduct for financial institutions. This first Directive has been applied all through the European Union since late 2007. MiFID has a distinct scope that mainly centered on OTC (over the counter) transactions.
Reasons for Implementing MiFID II
The first MiFID was aimed at becoming a foundation of EU’s efforts to form a single financial market for the union that could compete with the depth and drive of the US capital markets.
It was primarily designed to bring the monopoly of stock exchanges to an end and cut down overall trading expenses for investors and, in a small way, help in financial growth.
Unfortunately its implementation in November 2007 coincided with the beginning of financial crisis and the forthcoming years exposed its failings in focusing on equities. And thus, MiFID II was formed.
The aims of the new Directive are more ambitious. It will not only update the present rules to go hand in hand with technological developments but will also deal with what global policymakers considered as “opaque and under-regulated facets of the financial system”. That comprised of the vast off-exchange markets like bonds and derivatives.
Main Aims of MiFID II
- To make European markets more transparent, more secure and more efficient
- To regain the trust and confidence of investors that has been lost after the financial crisis
- To shift a major portion of over-the-counter trading towards the regulated trading platforms
Which Markets will it Cover?
MiFID II will cover the markets including:
- Fixed income
- Exchange-traded products
- Retail derivatives including CFDs (contracts-for-difference)
Who will MiFID II Affect?
It will affect everyone including fund managers, banks, trading venues, exchanges, brokers, high-frequency traders, retail investors, pension funds and brokers.
The new Directive doesn’t directly affect fund managers. However, there are high chances that it will affect their distributors who won’t be allowed to distribute the products of a fund manager until they get the product information required by MiFID II. Since only fund managers can give that information, they will have to indirectly face the product information requirements of the Directive.
All in all, MiFID II has brought a tool that can offer a peace of mind to investors and they can make their decisions with increased certainty and confidence.