On June 12th 2014 the Directive 2014/65/EU on Markets in Financial Instruments repealing Directive 2004/39/EC and the Regulation No 600/2014 on Markets in Financial Instruments (together "MiFID II") have been published in the Official Journal of the European Union. Member States have two years to transpose the new rules which will be applicable from January 2017.

In respect of the "level 2" legislation, on May 22nd 2014, ESMA published two consultation papers: (i) a consultation paper relating to technical advice to be provided by ESMA in respect of investor protection, transparency, data publication, trading venue requirements, commodity derivatives and portfolio compression, and (ii) a discussion paper dealing with technical standards to be developed by ESMA relating to investor protection, transparency, data publication, trading venue requirements, commodity derivatives, organisational requirements for investment firms and trading venues, market data reporting and post-trading requirements. The "level II" texts are due to be adopted by June 2015.

The new framework aims to make financial markets more efficient, resilient and transparent and to address the loopholes of the initial directive (MiFID I) which were revealed during the financial crisis.

Some of the interesting developments under MiFID II include:

  • A greater range of products and activities are within the scope of MiFID II;
  • A prohibition on inducements for firms providing "independent" advice or portfolio management has been introduced;
  • Firms will be required to comply with new obligations to enhance investor protection (e.g. suitability test, greater oversight of senior management, segregation of duties to prevent conflicts of interest);
  • In order to capture inter-broker dealing systems which are not regulated markets or multilateral trading systems (MTFs), a new trading venue, an Organised Trading Facility (OTF) has been introduced (limited to non-equity instruments);
  • A new harmonised regime for the provision of services by third country firms has been created;
  • Equity market transparency has been increased and a principle of transparency for non-equity instruments such as bonds and derivatives has been introduced; and
  • Supervisory powers of competent authorities have been strengthened.

The texts of MiFID II are available at:

http://ec.europa.eu/internal_market/securities/isd/mifid2/index_en.htm.

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.