Markets in Financial Instruments (MiFID II/MiFIR)

With MiFID (Directive 2004/39/EC), the markets in financial instruments directive, the EU established a comprehensive set of rules regulating firms who provide investment services and activities linked to financial instruments, and the trading venues where financial instruments are traded. The aim of the MiFID framework is to promote financial markets that are fair, transparent, efficient and integrated.

This first set of rules adopted by the EU sought to increase the competitiveness of financial markets by creating a single market for investment services and activities and to ensure a high degree of harmonised protection for investors in financial instruments, such as shares, bonds or derivatives.

As shortcomings were exposed in the wake of the financial crisis, the European Commission adopted new rules revising the MiFID framework in June 2014. These consist of a directive (MiFID II) and a regulation (MiFIR).

MiFID II aims to reinforce the rules on securities markets in various areas notably by:

• ensuring that organised trading takes place on regulated platforms;
• introducing rules on algorithmic and high frequency trading;
• improving the transparency and oversight of financial markets;
• enhancing investor protection and improving conduct of business rules as well as conditions for competition in the trading and clearing of financial instruments;
• introducing a harmonised commodity position limits regime;
• strengthening the protection of investors by introducing requirements on the organisation and conduct of actors in these markets.

MiFID II was transposed into Luxembourg law by the Law of 30 May 2018 on markets in financial instruments (MiFID II Law). This law is subdivided into two titles:

• Title I deals with markets in financial instruments and replaced the Law of 13 July 2007 on markets in financial instruments (MiFID Law) with the exception of Article 37 on the holding of an official listing;
• Title II mainly concerns the amendments to the Law of 5 April 1993 on the financial sector following the transposition of MiFID II.

MiFIR compliments MiFID II by setting out requirements on:

• the disclosure of data on trading activity to the public;
• the disclosure of transaction data to regulators and supervisors;
• the mandatory trading of derivatives on organised venues;
• the removal of barriers between trading venues and providers of clearing services to ensure more competition;
• specific supervisory actions regarding financial instruments and positions in commodity derivatives.

The MiFID II/MiFIR bundle affects in particular:

• Credit institutions
• Investment firms
• Trading venues:
  • regulated markets;
  • multilateral trading facilities (MTF);
  • organised trading facilities (OTF).
• Data Reporting Service Providers (DRSP):
  • approved reporting mechanisms (ARM);
  • approved publication arrangements (APA);
  • consolidated tape provider (CTP).
• but also unregulated entities trading commodity derivatives and emission allowances.

MiFID II and MiFIR became applicable as from 3 January 2018.