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MIFID (MiFID II (Multilateral trading facilities (Before the implantation…
MIFID
MiFID II
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Authorisation, regulation and passporting
Firms authorised and regulated in their home state will be able to use the MiFID passporting system to provide financial services in other EU states
Client order handling
Firms have to ensure they are acting in a client's best interest, especially when they gather together orders from different clients
Pre trade transparency
Companies have to comply with transparency for (a) order matching systems by providing information on best price levels and (b) market makers the best bids and offers
Post trade transparency
The price, volume and time of all trades in listed shares must be published unless they qualify for delayed publication
Best execution
Firms should be able to prove that they have taken reasonable steps to deal in the best interest for their clients. The requirements for best execution include
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Any other consideration relevant to the execution of an order to achieve the best overall result for the client
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Systematic internalisers
The new rules also allowed for the introduction of systematic internalisers. These allow investment firms to deal on their own account without using RIEs or MTFs carrying out client orders in an organised, frequent and systematic way
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Market transparency
Equity trading transparency is expected to increase and transparency for non-equity instruments such as bonds and derivatives will be introduced
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Third country firms
Access to EU markets, depending on assessment, may be granted to third-country jurisdictions by the European Commission
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Additionally under MiFID
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Banks and financial institutions will have to show customers that they were offered the best prices available for their trade
Fund managers will have to pay separately for research and trading costs - this is referred to as unbundling
Dealing in shares used to undertaken on a person to person basis either face to face or by telephone but as markets become fully computerised dealing has transferred from stock market floors to offices
Large buying or selling orders undertaken by institutions like pension funds in the UK were difficult to complete partly due to the rules regarding transparency. There was a time delay in reporting trades but market professionals could often work out what was happening and potentially make unscrupulous profits by moving prices against the institutions
The introduction of MiFID slowed European markets to introduce new dealing platforms which made large deals possible
Markets in Financial Instruments Directive: A European Union law that provides harmonised regulation for investment services across the 30 member states of the European Economic Area
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Essentially EU legislation that regulates firms that provide services linked to financial instruments including shares, units in collective schemes and derivatives and the venues where those instruments are traded
It is designed to afford greater protection for investors and enhance transparency into all asset classes including equities, fixed income including bonds exchange traded funds and foreign exchange products and derivatives including contracts for difference
Rules contained within MiFID II cover nearly all areas of financial trading within the EU. Specifically they will apply to all EU member states
MiFID II aims to build on MiFID I by introducing a sounder, more transparent and responsible financial system