On 14 January, agreement in principle was reached between the European Commission, Parliament and Council on the legislative package commonly referred to as MiFID II. A draft regulation and directive have now been published. Although no timeline has been published as to when the final text will be made available, it is hoped that this will be before April 2014.  Matheson held an introductory client briefing on MiFID II on 11th of February. A copy of the presentation is available here. We intend to hold a more focused session on the highest impact provisions later in the year, when the final text of the directive is published.

When implemented in 2007 MiFID created a new regulatory landscape.   Following the global financial crisis, the European Commission decided to review the MiFID framework and is due to issue the revised MiFID regime in the coming months.  The package has been heavily negotiated and the final text is awaited with anticipation by industry participants.

What are the key changes?

At a high-level, MiFID II will:

  • Extend the existing regime both in terms of instruments and firms covered, so that, for example, certain commodity trading firms will fall within scope of the regime
  • Ban inducements for “independent” third party advisors
  • Impose regulatory requirements on firms undertaking algorithmic trading (including HFT)
  • Impose position limits on the trading of commodity derivatives
  • Impose restrictions on third country firms providing services in the EU
  • Introduce enhanced corporate governance requirements for investment firms
  • Introduce enhanced pre- and post-trade transparency provisions in respect of both equities and non-equities

When the MiFID II directive and regulation are issued, firms will have to complete a gap analysis between the old regime and the revised MiFID II requirements to identify the required changes and ensure they are revised appropriately before the changes come into force. This will include, for example, undertaking a full assessment of current governance structures, procedures and client documentation and terms and conditions to ensued they are MiFID II compliant.