European Union: Forex: Europe Ready For MIFID II

Last Updated: 27 December 2017
Article by Calogero Boccadutri

The imminent implementation of the new European directive MIFID II, a legislation created to regulate the markets and financial instruments, will make the financial market more transparent for savers and investors.

MIFID stands for Markets in Financial Instruments Directive. In fact, it is the instrument developed by the European Union to protect the ever increasing number of investors and savers that invest their money in the markets.

The first MIFID understood as long ago as on the 1st November 2007, before the online trading boom, that it would be necessary to add new chapters and definitions to their policies. The wait is at an end with the implementation of the MIFID II fixed for the 3rd January 2018.

The new directive will create greater transparency, much desired in the European financial markets, with particular regard to the protection of savings, banking products or investment.

What does MIFID II offer

MIFID II's analysis has established a lack of clarity both before and after making financial transactions.

This will be resolved with better, more informative schemes and with the ongoing drafting of reports and timelines.

The instruments traded and the quoted prices will be constantly monitored by various relevant national authorities.

Trading online, how is it changing?

The easy access to online trading sites has made investors more vulnerable. The first MIFID already took action by reducing the trading costs for investors, but this only encouraged brokers and did not protect the investors in any way.

From January brokers will have to carry out their operations via "open" and regulated platforms, by posing limits on offers, on the possibility of choosing and introducing algorithms.

To be able to use these algorithms they will have to be tested and registered by the regulatory body.

All financial operators will be required to make data reports.

Another change is that one will no longer be able to trade via telephone calls, the trading orders will be exclusively managed on the trading platform, and thus will be much easier to monitor.

MIFID II's jurisdiction is will expand to include entities that actually operate on various financial markets, including particular operations such as over the counter (OTC), namely the purchase and sale of securities, which is not included in the stock exchange and commodities, underlying derivative instruments.

Companies and financial education

Having to adapt to "the eligibility requirements for trading" is necessary to remain competitive: they will have to adapt both their procedures and their technological means.

Everything will be based on the client, who will be exclusively informed as to what is more suitable for him/her. Financial products will have to be created and sold on the basis of the type of client for whom the product is intended.

Therefore there will have to be an analysis of the requirements, the potential risk, the capacity and the financial resources of the company, before selling begins. The distribution of "execution only" products will decrease, namely those products that do not meet the requirements before being used.

Trained staff

All those operating in the financial markets will have to be trained staff. The enforcement authorities will monitor so that every member of staff of the company is able to offer the best service, by demanding professionalism and specific skills.

They will have to know what they are selling. Moreover, they will not be encouraged by the type of product sold because as has often happened, that which encourages the marketing of financial instruments is that which brings in large profit, and are at the expense of the client.

Reinforcement authorities

The national and international surveillance authorities (such as Esma, European Supervision of the Financial Markets and Eba, European bank authority) they will be able to prohibit or limit sales and such financial instruments that could pose excessive risks to investors or the financial stability of the system.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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