MiFID/ MiFID II/ MiFIR Flashcards
What are EU directives not?
Not laws or regulation - they are direction/ guidance
What were EU directives issued under?
Issued under Article 58 of the European Treaty
What is the goal of the EU directives? and why?
To harmonise laws across member states - because the more we harmonise the easier it is to make cross border sales
How are the EU directives implemented?
o May be implemented by:
- Primary legislation (new law); or
- Delegated legislation (amending existing law
What happens if the EU directives are not implemented by the due date
If it is not implemented by the due date then has a ‘VERTICAL DIRECT EFFECT’, i.e. given precedence over national law
What are EU Regulations and what is their effect?
o Most direct form of EU law
o IMMEDIATELY BINDING in all EU member states
What does MiFID allow in terms of ‘passpoorting’?
• Firms may trade throughout EEA with a single authorisation (‘single passport’)
How long can it take for a firm to obtain a ‘single passport’
up to 6 months
Under MiFID passporting who is the passport obtained by and what conduct of business rules apply?
o Obtained from HOME state regulator
o HOST state conduct of business rules apply
When was Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) implemented?
January 2018
What are the key changes from MiFID to MiFID II
o A regulated organised trading facility (OTF)
o Strengthening the transparency requirements
o Limiting the size of positions held in commodity derivatives
o Rules to avoid potential risks and creation of disorderly markets from increased use of technology performed electronically at very high speed
o Increased information on products and services
TOILEt T- transparency O - OTF I - Increased info L - Limiting the size of positions held in commodity derivatives E - Electronic
What does MIFID II distinguish between (as was also the case with MiFID)?
o Investment services and activities (core services – at the very heart of most financial institutions – their daily business); and
o Ancillary services (non-core ‘add-on’ services that compliment the core services)
Why is an regulated OTF needed under MiFID II?
idea of this is for transparency regulated markets are very transparent everything that is traded on this can be seen by all.
E.g. brings bonds and derivatives which are brought on an OTC under a more transparent system
Expand on how transparency requirements generally were increased under MiFID II
Trade reporting and transaction reporting were greatly strengthened
What is it called when the size of positions held in commodity derivatives is limited?
Position limits
Why is there emphasis in MiDIF II around increased regulation around electronic trading
Because of an increase in High Frequency Trading (lots of problems can occur here because everything is run on algorithms so if anything went wrong the systems could take over and cause issues) so more regulation here.
Under MiFID II what can be done with ‘core’ services?
They can be passported even on their own
List out the ‘core’ investment services and activities
RED POO Mop It Up
R - Reception and transmission of orders
E - Execution of orders for clients (e.g. brokers)
D - Dealing ‘own account’ (principal)
P - Placing
O - Operating an MTF
O - Operating an OTF
Mop - Managing investments/ portfolios
It - Investment advice
Up - Underwriting
List out the Ancillary Services
Shaggy Giraffes Appreciate Frozen Iced Igloos
o Safekeeping and administration of investments
o Granting credit (margin)
o Advice on capital structure and advice and services relating to M&A
o FX services
o Investment research
o Investment and ancillary services relating derivative underlying assets
What can’t be done with Ancillary/ ‘add on’ services?
These cannot be passported on their own. If wanted to sell these services alone then they would need to get licensing in every jurisdiction.
When can ancillary/ ‘add on’ services be passported
They have to be added along/ used in conjunction with the core services and passported.
Under MiFID II what counts as financial instruments?
Trombones Don’t Make D Flat Unless Really Determined
T - Transferable securities
D - Derivative contracts relating to: Securities; currencies; interest rates or yields; emission allowances, financial indices and commodities (physical or cash settled).
M - Money-market instruments (products with a life of less than 12 months)
D - Derivative instruments for the transfer of credit risk e.g. CDS (credit default swap)
F - Financial contracts for differences –> cash settled product.
U - Units in an Collective Investment Undertaking CISs)
R - Reception and transmission of orders
D - Derivative contracts relating to:
o Climate, freight or inflation; or
o Other official economic statistics
Under financial contracts for differences what under MiFID II isn’t a contract covered
Any non-cash settled product
e.g. spread bet on sports would not be covered
When was MiFIR implemented?
January 2018
