Markets in Financial Instruments Directive / Regulation (MiFID / MiFIR)

The Markets in Financial Instruments Directive II (“MiFID II”) and the accompanying Markets in Financial Instruments Regulation (“MiFIR”) are both pieces of legislation originating from the European Commission and together seek to provide an EU-wide regulatory framework for the operation of financial markets.

MiFID II represents a major overhaul of the existing law, building on and extending the scope of the first Markets in Financial Instruments Directive, which originally came into force in November 2007. MiFID II introduces stringent requirements relating to communication, disclosure and transparency in favour of investors.

A key objective of MiFID II is ensuring firms provide best execution for their clients. Best execution has several aims, including:

  • “to ensure that investment firms execute client orders on terms that are most favourable to the client” (MiFID II Recital 91);

  • to sustain the integrity of the price formation process; and

  • to promote competition among trading venues in increasingly fragmented markets.

Best execution obligations apply to firms when they are executing orders on behalf of their clients, which will generally be the case when a firm owes contractual or agency obligations to a client (MiFID II Recital 33) or the client legitimately relies on the firm to protect their interests in relation to the execution of the transaction (FCA Thematic Review).

The final legislative texts of MiFID II and MiFIR were approved by the European Parliament on 15 April 2014 and by the European Council on 13 May 2014. The two texts were published in the Official Journal on 12 June 2014 and entered into force on 2 July 2014. Many of the obligations under MiFID II and MiFIR were further specified in the Commission Delegated Directive and Commission Delegated Regulations (see below), as well as regulatory and implementing technical standards developed by the European Securities and Markets Authority (ESMA). MiFID II and MiFIR, together with the Commission delegated acts as well as regulatory and implementing technical standards, will be applicable from 3 January 2018.

Regulatory technical and implementing standards – Annex I (Draft) (28 September 2015)

Commission Delegated Directive (EU) 2017/593 (7 April 2016) with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits (OJ L 87, 31.3.2017, p. 500–517)

Commission Delegated Regulation (EU) 2017/567 (18 May 2016) with regard to definitions, transparency, portfolio compression and supervisory measures

Commission Delegated Regulation 2017/565 (31 March 2017) on organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (defining spot and derivative contracts relating to currencies)

Commission Delegated Regulation (EU) 2017/576 of 8 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council (31 March 2017) with regard to regulatory technical standards for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution (RTS 28 - Top Five Execution Venues)

Commission Delegated Regulation 2017/583 (31 March 2017) on markets in financial instruments with regard to regulatory technical standards on transparency requirements

Commission Delegated Regulation 2017/585 (31 March 2017) on data standards and formats for financial instrument reference data supplementing MiFIR

Questions & Answers

ESMA has developed various Question and Answer(Q&A) documents in support of MiFID/MiFIR, the purpose of which is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR. They provide responses to questions posed by the general public, market participants and competent authorities in relation to the practical application of MiFID II and MiFIR. The content of these documents is not exhaustive and do not constitute new policy. ESMA will periodically review these Q&As on a regular basis to update them where required and to identify if, in a certain area, there is a need to convert some of the material into ESMA Guidelines and recommendations. These documents are intended to be continually edited and updated as and when new questions are received. The date on which each section was last amended is included for ease of reference.

ESMA Q&A on Investor Protection under MiFID II (18 December 2017)

ESMA Q&A on MiFID II and MiFIR market structures topics (15 November 2017)

ESMA Q&A on MiFID II and MiFIR transparency topics (15 November 2017)

ESMA Q&A on MiFIR data reporting (14 November 2017)

ESMA Q&A 0n MiFID II and MiFIR commodity derivatives topics (14 November 2017)