The European Parliament approved new rules on the trading of financial instruments that aim to curb speculative trading and offer better protection to investors. The revised Markets in Financial Instruments Directive (MIFID) and its associated regulation was signed off by the European Parliament after more than three years of discussions, in a bid to better regulate capital markets in the wake of the financial crisis.
Key elements of the new legislation:
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MiFID II introduces a market structure framework which closes loopholes and ensures that trading, wherever appropriate, takes place on regulated platforms.
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It increases equity market transparency and for the first time establishes a principle of transparency for non-equity instruments such as bonds and derivatives.
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To meet the G20 commitments, MiFID II provides for strengthened supervisory powers and a harmonised position-limits regime for commodity derivatives to improve transparency, support orderly pricing and prevent market abuse.
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A new framework will improve conditions for competition in the trading and clearing of financial instruments.
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MiFID II will introduce trading controls for algorithmic trading activities which have dramatically increased the speed of trading and can cause systemic risks.
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Stronger investor protection is achieved by introducing better organisational requirements, such as client asset protection or product governance, which also strengthen the role of management bodies.
The new rules will apply to investment firms, market operators (trading on stock or financial markets) and services providing post-trade transparency information in the EU. They are set out in two pieces of legislation, a directly applicable regulation dealing inter alia with transparency and access to trading venues and a directive governing authorisation and organisation of trading venues and investor protection.
Next steps
Following the vote in plenary, MiFID II must be formally adopted by the Council. The publication of the new rules in the Official Journal of the European Union is foreseen for the second quarter of 2014 with entry into application 30 months later.
Press release
EP press release
MiFID- II- Frequently asked questions
Comments
Internal Market and Services Commissioner Michel Barnier said: "I welcome today’s adoption of MiFID II by the European Parliament. Our legislation needs to keep pace with the changes in financial markets and implement our G20 commitments. The new rules will improve the way markets function in order to serve the real economy. They will establish a safer, more transparent and more responsible financial system and restore investor confidence in the wake of the financial crisis. I would like to congratulate the European Parliament - especially the rapporteur, Markus Ferber, and the shadow rapporteurs - for their hard work and commitment on this important file."
Press statement
Commenting after vote, Green finance spokesperson Sven Giegold said: "These new rules will help tackle speculation on food and other essential commodity markets. The legislation adopted today also includes new provisions for curbing damaging practises in investment markets, like high frequency trading, as well as provisions ensuring stronger consumer protection. Under the new legislation, the European Securities and Markets Authority will be given powers to enforce limits on excessive trading in food and commodity markets. This will help rein in speculation on these sensitive markets."
Press statement
The Investment Management Association (IMA) is broadly positive about the agreements on MiFIR/D II, the PRIIP KIID and UCITS V voted through in the European Parliament, which deliver significant improvements to current practice that are in the interests of investors.
Whilst the final text of MiFIR/D II will allow improved market stability, it is doubtful whether it will ensure efficiency and free and fair competition. The IMA’s regulatory affairs team is available for comment today on specific elements of the legislation.
Press release
Further reporting by Bloomberg, especially on limiting HFT and reining in "Flash Boys".
Nick Railton-Edwards from DRS sets out the timeframe:
ESMA will now (officially) begin the mammoth task of crafting the all-important detail, the following (to be done by) time line has now begun:
The Commission formally requests ESMA’s advice on Level 2 measures - delegated Acts and technical standards
20 May: ESMA Board of Supervisors signs off on all Level 2
Early June: ESMA issues two discussion papers: RTS and their implementation, and a consultation on Delegated Acts. Both papers will be subject to a two month response interval
June 2014: MiFid II / MiFiR published in the OJ
December 2014: ESMA delivers its advice on delegated Acts to the Commission
June 2015: ESMA delivers its RTS advice to the Commission
December 2015: ESMA delivers its advice on implementation of RTS to the Commission
June 2016: Member States will transpose MiFiD II into their national law
January 2017: MiFiD II enters into force
© European Parliament
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