MiFID – Markets in Financial Instruments Directive

The Markets in Financial Instruments Directive also known as the MiFID and its duty is to provide regulation for investment services in 31 member states of Europe’s Economic area. These 31 states are the 28 EU member states, as well as, Iceland, Norway and Liechtenstein. The directive’s main aim is providing consumer protection and increasing competition in investment service provision. The MiFID replaced the Investment Services Directive (ISD) as of November 1st 2007.

On 20th October 2011, the European Commission took up the legislative proposal to revise the MiFID. These proposals took the form of a Directive that had been revised and a new regulation which was referred to as the MiFID II. These new proposals were designed to include developments in the trading environment from the time the MiFID was implemented in 2007. This includes advances in technology, as well as, the gaps in investors and regulators transparency.



MiFID covers most of the firms that were placed under the jurisdiction of ISD and others that were not. Some of the firms that MiFID is obliged over are; corporate finance firms, some commodity firms, future and options firms, portfolio managers, broker dealers and corporate finance firms.
What does MiFID do?

One of the primary functions of the MiFID is to determine the firms that are affected by MiFID and those that are not. If a firm offers services in investment and ancillary, then it is subjected to seek regulation from the MiFID. But when a firm is only offering ancillary services, then it is not subject to the MiFID.

Currently, MiFID monitors all tradable financial products but does not cover foreign exchange trades. Some of these financial assets include freight, climate and carbon derivatives which were not previously covered by ISD.

They offer “passport” services which generally include offering approval to a UK-authorized firm that wish to offer their services to other European Economic Area Member stated. What is required is for the firm to fall into the scope of the relevant single market directive.
Harmonisation

The MiFID has the duty of setting out detailed requirements that govern the organization and conduct of business in investment firms and monitoring of how the regulated markets and MTFs are operating.

Under their harmonization rule, they are to lay down new trade transparency requirements to make the market equal and create new regime for systematic internalisers’ of the retail order flow in liquid equities.
Monitor Cross border business

As part of their duty, they should also improve the passport for firms in investment through definition of clearer lines in the respective responsibilities of their home and host states and shed more light on the uncertainties on jurisdiction that came up during the ISD.
Ensure Capital requirements are met

The MiFID is supposed to make sure that all firms comply with the new Capital Requirements Directive (CRD) which stipulates the minimum capital that a firm should hold. These firms that are newly covered by the MiFID will be put on the directive based capital requirements for a first time.

MiFID is part of the European Union’s Financial services Action Plan (FSAP) which has been developed to assist in the integration of Europe’s financial markets. MiFID is comprised of two levels of the legislation. There is Level I which is the directive itself that was adopted in 2004. The Level II measures were adopted on advice basis offered by the Committee of European Securities Regulators (CESR) and were to be negotiated and agreed upon at European level in The European Securities Committee (ESC).