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MiFID II: What you need to know

The Financial Conduct Authority states that the Markets in Financial Instruments Directive (MiFID) is the framework of EU legislation for:

 • Investment intermediaries providing services to clients in relation to shares, bonds, units in collective investment schemes and derivatives (collectively ‘financial instruments’) and

 • the organised trading of financial instruments.

However, the existing MiFID framework is due to be replaced by two pieces of legislation: a directive (MiFID II) and a regulation (MiFIR). Why? Well, MiFID has been in practice for over 6 years but as a result of the financial crisis and economic uncertainty, this directive is being revised to improve the functioning of financial markets and to strengthen investor protection. It’s thought that new, improved legislation will ensure a more integrated and efficient competitive EU financial market. These changes will take effect from 3 January 2017 and will be known as MiFID II. 

MiFID II is a multi-faceted piece of legislation and will affect the market in coming months. Alongside this, a multitude of functions within business, from client services to IT to HR systems will likely be affected by the structure and additional features of MiFID II from early 2017. 

This new legislation will bring increased market transparency and has been framed with view to providing as much stability as possible to the financial system. One question though, is how will this new legislation better protect investors? MiFD II will include various measures solely aimed at protecting investors in the context of investment services. These measures take into account the type of services (i.e. execution of orders or advice) alongside the classification of clients. Other elements of the new legislations such as controls on algorithmic trading, have been introduced as a direct response to market and technical advancements since the original MiFID. 

Once the legislation is in place, it’ll be interesting to see if the expected benefits are applied equally to all market participants and if the benefits are actually passed on to the end investor. 

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