The Markets in Financial Instruments Directive (‘MiFID’ - Directive 2004/39/EC), sought to improve the competitiveness of EU financial markets by creating a single market for investment services and activities, and ensuring a high degree of harmonised protection for investors in financial instruments. While the Directive helped contribute to more integrated and liquid financial markets and has driven down costs for issuers and investors, market developments and the financial crisis showed gaps that need to be closed (market fragmentation, market and technological developments).

The Commission proposed to replace the MiFID with a Regulation on markets in financial instruments and a Directive on markets in financial instruments.

The proposals introduced a market structure framework which closes loopholes and ensures that trading takes place on regulated platforms; increased equity market transparency and established a principle of transparency for non-equity instruments such as bonds and derivatives; provided for strengthened supervisory powers and a harmonised position-limits regime for commodity derivatives to improve transparency, support orderly pricing and prevent market abuse; improved conditions for competition in the trading and clearing of financial instruments; introduced trading controls for algorithmic trading activities which have dramatically increased the speed of trading and can cause systemic risks; achieved stronger investor protection by introducing better organisational requirements, such as client asset protection or product governance, which also strengthen the role of management bodies; strengthened the existing regime to ensure effective and harmonised administrative sanctions; introduced a harmonised regime for granting access to EU markets for firms from third countries, based on an equivalence assessment of third-country jurisdictions by the Commission.

The Commission’s legislative proposals were published on 20 October 2011. The European Parliament adopted the proposals on 15 April 2014. It inserted significant amendments, to address areas that were not regulated to that point (including new forms of trading, such as algorithmic and high-frequency trading), to ensure market integrity and the protection of investors (by ensuring that trading venues adopt more transparent fee structures and that the remuneration or the performance assessment of a firm’s staff do not conflict with their duty to act in the best interests of their clients) and to limit speculation on commodity markets (by providing that competent authorities must be able to establish limits on the positions any person can hold in a derivative contract in relation to a commodity at all times).

The final acts were published in the Official Journal on 12 June 2014. However, due to challenges in collecting the necessary data for the operation of the MiFID II rules, the date of entry into application of both instruments that are comprised in MIFID II has been extended.

References:

• EP Legislative Observatory, Procedure file on Markets in financial instruments; OTC derivatives, central counterparties and trade repositories, 2011/0296(COD)
• EP Legislative Observatory, Procedure file on Markets in financial instruments. Recast, 2011/0298(COD)
• EP Legislative Observatory, Procedure file on Markets in financial instruments; market abuse; securities settlement in the EU and central securities depositories: certain dates, 2016/0034(COD)
• Legislative act, European Parliament and Council Directive 2004/39/EC of 21 April 2004 on markets in financial instruments (MiFID)
• Legislative act, European Parliament and Council Directive 2014/65/EU of 15 May 2014 on markets in financial instruments (MiFID II)
• Legislative act, European Parliament and Council Regulation (EU) No 600/2014 of 15 May 2014 on markets in financial instruments (MiFIR)

Author: Angelos Delivorias, Members' Research Service, legislative-train@europarl.europa.eu