MiFID is the Markets in Financial Instruments Directive (2004/39/EC). It has been applicable across the European Union since November 2007. It is a cornerstone of the EU’s regulation of financial markets seeking to improve their competitiveness by creating a single market for investment services and activities and to ensure a high degree of harmonised protection for investors in financial instruments.
MiFID sets out:
- Conduct of business and organisational requirements for investment firms.
- Authorisation requirements for regulated markets.
- Regulatory reporting to avoid market abuse.
- Trade transparency obligation for shares. and
- Rules on the admission of financial instruments to trading.
MIFID II Directive 2014/65/EU and MiFIR was adopted on the 3rd of January 2018 with the aim to increase the level of protection of the investor and improve the efficiency resilience, transparency and the overall functioning of financial markets. This new legaslative framework was adopted in Cyprus through the Cyprus Investment Services and Activities and Regulated Markets Law of 2017 (Law 87(I)/2017).
The fundamental purposes of European Union’s Markets in Financial Instruments Directive (MiFID II) and MiFIR are to improve levels of efficiency, to increase financial transparency, to promote competition and to effectively protect consumers. MIFID II and MiFIR permit investment firms to provide investment and ancillary services in another member state, as long as such services are covered by the investment firm’s authorisation.
MiFID II and MiFIR ensure fairer, safer and more efficient markets and facilitate greater transparency for all participants. New reporting requirements and tests have increased the amount of information available, and reduced the use of dark pools and OTC trading. The rules governing high-frequency-trading will impose a strict set of organisational requirements on investment firms and trading venues, and the provisions regulating the non-discriminatory access to central counterparties (CCPs), trading venues and benchmarks are designed to increase competition.
The protection of investors is strengthened through the introduction of new requirements on product governance and independent investment advice, the extension of existing rules to structured deposits, and the improvement of requirements in several areas, including on the responsibility of management bodies, inducements, information and reporting to clients, cross-selling, remuneration of staff, and best execution.