UK: Political Agreement Reached On MiFID II / MiFIR | A New Landscape For EU Capital Markets

Last Updated: 20 January 2014
Article by Fiona Syer and Rosalind Fergusson

Most Read Contributor in UK, August 2017

After more than two years of negotiations, a political agreement was reached last night on the revision to the Markets in Financial Instruments Directive and Regulation (MiFID II / MiFIR). This marks a key milestone in the progress of the reforms which are set to change the landscape for EU capital markets fundamentally. The deal is intended to make markets more resilient by overhauling over-the-counter (OTC) derivatives trading and curbing algorithmic and high-frequency trading; increase transparency in equity, bond, derivative and commodity markets; increase competition in the clearing and trading space; and enhance investor protection. While negotiations have been lengthy, the hiatus that would have been caused by the European Parliament elections in May provided the impetus to get the agreement over the line.

Key agreements

Trading

Notably, and for the first time, a significant proportion of the OTC derivatives market will move to a regulated venue; fulfilling a key part of the 2009 global G-20 commitment. This will be aided by the introduction of a new type of venue: the organised trading facility (OTF) – largely seen as the equivalent to the US swap execution facility. This will complement the existing suite of regulated markets and multilateral trading facilities although trading on such a venue will be restricted to non-equities.

High-frequency and algorithmic trading will be regulated for the first time in the EU. Firms undertaking such trading will need to have effective systems and controls in place; their algorithms will need to be approved by the regulators and a range of measures to reduce systemic risk, such as the introduction of 'circuit breakers', will be required.

Transparency

The new transparency requirements are far-reaching, with the scope of the regime extending dramatically. Firms and trading venues will need to disclose a range of information prior to and post execution of the trade. Not only will the regime tighten perceived loopholes in the use of waivers for equity markets, it will also extend to equity-like instruments such as depositary receipts and exchange traded funds and to non-equity markets including derivatives and bonds.

The requirements for bonds and derivatives will bring the EU into line with the approach in the US. For firms grappling with the transparency requirements in the European Market Infrastructure Regulation (EMIR) many of these instruments will need to be reported on a near-real time basis as opposed to EMIR's trade date plus one approach. As with many elements of the MiFID II package the calibration of the transparency regime will be key to ensuring the right balance between price formation and a possible negative impact on liquidity.

Access to market infrastructure

Competition is set to increase in clearing and trading with the requirement for non-discriminatory access to trading venues, central counterparties and benchmarks. Of less concern to firms, this issue has proved highly contentious during negotiations, where there are often 'vertical silos' between exchanges and clearing houses. The use of transitional rules appears to have been the key to securing agreement.

Commodities

Additional requirements and a widening in scope will bring challenges for commodity firms. Under negotiation until the last minute, the scope has widened to include natural gas and electricity contracts. And the thorny issue of position limits has been resolved. Going forward, the European Securities and Markets Authority (ESMA) will set the methodology by which national authorities will impose limits on firms' positions in commodity derivatives.

Third country requirements

The new third country requirements differ depending on whether a firm provides services to a retail client or a client that has elected to be treated as professional, and between services to eligible counterparties and professional clients. Highly controversial during negotiations, non-EU firms are likely to gain some comfort from the final position.  

For services provided to retail clients/clients that request to be treated as professional, Member States will have some discretion over how the regime will apply, including whether or not the firm will need to establish a branch.  For services to eligible counterparties and professional clients, if the Commission reaches a positive equivalence assessment of the third country regime and following registration with ESMA, firms will be able to provide services to such clients without a branch. Until a positive equivalence assessment is reached, national regimes will continue to apply, removing the threat that access would be restricted.  

Investor protection

Investor protection will be enhanced in the EU with the introduction of rules relating to product governance, product intervention and third-party inducements, and limiting the range of products that can be sold without an appropriateness test. With the aim of harmonising rules across investment products, structured deposits have been brought into scope and MiFID II will also amend the Insurance Mediation Directive to introduce certain rules for insurance-based investment products. While in the UK the Retail Distribution Review has already implemented some of the changes, particularly regarding third-party inducements for independent advisers, these rules will have a far-reaching effect in other EU countries.

What's next?

While last night's political agreement sets out the big picture for the reforms, the detail will still need to be filled in. There remains some legal tidying up before it can enter into force, with trialogues continuing to agree the less contentious, technical aspects of the package, followed by a vote in the European Parliament. Final sign-off by the Council is expected in Q2 2014. The Commission will need to draft the more detailed "level two" measures and ESMA will need to draft technical standards, and is expected to release a bumper discussion paper on this shortly. Getting the detail right on nearly a hundred implementing acts and technical standards will be key.

A two-year transitional period will follow, as the Directive is transposed into national law, with application expected in Q3 2016. While this may seem a long way off, there is much that firms will need to consider ahead of this.  

MiFID II / MiFIR is a substantial package of reforms, the effect of which will take some time to digest as updated texts filter through. Watch this space for further detailed analysis. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.