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Prior to the financial crash, the EU regulatory regime had already been harmonised in 2007 by the implementation of the Markets in Financial Instruments Directive (MiFID). MiFID created consistent regulation for investment services across the 31 member states of the European Economic Area, with all participants subject to a similar regime. MiFID retained the principles of the EU "passport" introduced by the earlier Investment Services Directive (ISD) but introduced the concept of "maximum harmonisation" which emphasised home state supervision. MiFID also introduced the concepts of the Multilateral Trading Facility, a less formal trading venue than a regulated market, but nonetheless one requiring regulation and a degree of pre-trade transparency. MiFID also introduced the concept of the “Systematic Internaliser”. In many ways, MiFID I was based on the UK regulatory system, which the European Commission viewed as the most versatile and functioning of all members countries. MiFID was largely imported at Level 2 into the UK by the FSA’s Conduct of Business Rules; however, this has led to criticism that MiFID was not consistently interpreted, between member state regulators, leading to opportunities for regulatory arbitrage.


MiFID II covers many of the topics addressed by MiFID, including scope, authorisation, best execution, organisation and conduct of business rules and will additionally introduce a new form of non-discretionary trading hub, the Organised Trading Facility (OTF).

The OTF category has been designed to capture all forms of organised trading in non-equity securities, which has not already been regulated. This will inevitably create a lot of work for operators of platforms and facilities which previously would not have been either outside the scope of regulation altogether, or who would have described their activities as simply receiving and transmitting orders.

MiFID II also brings commodity derivatives much further into the scope of regulation, in particular physically settled derivatives. Regulators will be empowered to monitor and intervene at any stage in trading activity in commodity derivatives. MiFID II will largely be enforced by directly enforceable Level 2 regulations, with a view to greater harmonisation and with a view to avoiding some of the inconsistencies when MiFID I was implemented. There will also be Level 3 materials in the form of guidance produced by the European Securities Market Authority (ESMA).

The Markets in Financial Instruments Regulation (MiFIR) will be implemented alongside MiFID II. Unlike MiFID II, as a regulation, MiFIR will be directly enforceable. MiFIR deals less with direct customer orientated obligations and instead covers bigger picture trading issues, in particular pre and post trade transparency. Although these concepts existed under MiFID, they have been expanded considerably and now cover non-equities. Under MiFIR, regulated markets, MTFs and OTFs will have to publish bid and offer prices and information relating to depth of trading interest, very much in the spirit of the G20 Accord. Operators will be interested to learn that such data will need to be streamed continuously during exchange opening hours. Certain low volume products will be exempt from such requirements. However, ESMA is still undecided as to whether to exempt instruments on a class or individual instrument basis.

These requirements will create considerable cost and development issues for operators of any type of trading venue. MiFID II and MiFIR are due to come into force in January 2017. We can assist your business in preparing for implementation, by reviewing and updating your terms of business and reviewing your disclosure obligations. If you are a platform operator we can advise on your likely obligations and on your best strategy for economic compliance.

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