MiFID 2 Flashcards
(11 cards)
What are the 5 high level topics of MiFID 2
1) Introduced OTFs
2) Limited Commodity Derivative Positions
3) Improved pre/post trade transparency
4) Limited risk of disorganised markets (HFTs)
5) Increased consumer protections
What was the purpose of creating OTFs
To create a regulated exchange the capture the increasing amount of unregulated trades in 1) Binary Options 2) FX
Improves the transparency, pricing and consumer protection in these instruments
What was the purpose of limiting position sizes in commodity derivatives
To prevent large speculative positions in unsuitable assets
such as common agricultural products
How did MiFID 2 improve pre/post trade transparency
1) Introduce consolidated tape for ETFs, Shares and Certificates
2) Frequency of reports required reduced to every 3 months
3) Advisory clients require a suitability report before every transaction
How did MiFID 2 improve consumer protection
Increased the required amount of production information to allow consumers to be better informed
Forced firms to ensure their compensation structures were not based in a manner that encouraged practices which may harm consumers (e.g. GFC 2008)
What was the main focus of MiFID 2 in terms of preventing disorderly markets
To increase regulation on HFTs - by requiring them to gain authorisation
Also aimed to ensure more transparent order processes and pricing processes.
What two other areas did MiFID 2 introduce?
1) Best execution rules
2) Restriction on inducements (cannot provide research for free)
What changes were introduced aimed at HFT firms?
1) Must now register and be authorised
2) Must test systems
3) Must have kill switches
What changes did MiFID 2 introduce to research?
To reduce conflicts of interest, research cannot be received for free
it must be paid for from a seperate reserach payment account
What are the MiFID product governance rules
Firms must define their target market, and ensure that products are distributed only to appropriate clients.
Due to MiFID 2, what information must firms publish re: order execution
1) data on execution quality
2) Top 5 execution venues
