What is MiFID Two?
MiFID Two 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 to help create unified and fair financial markets in the EU for the benefit of the public. The Israeli Regulator has adopted all the recommendations for the local market as defined in MiFID. The MiFID includes several vital directives:
- Outlines the requirements necessary to regulate trade markets
- Provides codes of conduct and operational requirements for investment institutions and professionals.
- 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:
- Funds and Fund managers
- All trading exchanges
- Banks and bank managers
- Any venues for trading
- Pension funds
The other primary concern is the markets that the MiFID II addresses, which are:
- Fixed income
- Exchange-traded goods
- All retail derivatives
Is MiFID Good for the General Public?
Whatever your views on these sweeping reforms, the impact of MiFID II is undeniable and far-reaching. Perhaps it is simply too early to judge the long-term ramifications, after all, even the implementation of the directive was delayed, and it will probably take many more years for the markets and investors to uncover the many “unknowns”.
The status quo until now has leaned heavily on self-regulation, a method that some believe has worked perfectly well until now. It is perhaps no surprise then that these reforms have been viewed by some as unwarranted, heavy-handed regulation. However, it is worth remembering that MiFID II is far from an exercise in compliance designed to punish aberrant operators within the industry.
The question has been asked as to whether anything will change under the new directives, but what is becoming clear, is that much will need to change. Transparency may be seen as a buzzword to some, affecting many industries in a consumer-driven world. Still, as poor practice and repeated incompetence are uncovered, it seems there can be no turning back from new and more open markets and those who do not adapt will surely die.