MiFID2/MiFIR: what, when, who and how

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MiFID2/MiFIR: what, when, who and how

On 3 January 2018, Europe will see the update to the Markets in Financial Instrument Directive (MiFID II) and the accompanying Regulation (MiFIR) come into force. Focusing on core principles of the creation of fairer, safer and more efficient markets, this arguably is the broadest piece of financial industry legislation ever and has the potential to significantly change market structures. Now is the time to be selecting and integrating systematic solutions , depending on your banks business model, it is affecting a wide range of your banks, financial firm’s functions – from trading, transaction reporting and client services to IT and HR systems.

WHAT is the KEY CHANGE in MIFID 1 - the concept of multilateral trading facilities (“MTFs”) and “systematic in sternalisers” (“SIs”) and imposed pre- and post - trade transparency the SIs market makers-matching customer orders internally rather than showing these to the market. Mifid replaces rules in many markets that require trades to be executed at local exchanges. Instead, banks will be allowed to act as "systematic internalisers",

WHY

So why need MIFID 2, is it extension to MIFID 1 , The MiFID one was to strengthen the single market for investment services and activities, thereby harmonising investor protection and increasing competition in EU financial markets. Many of these aims were achieved, such as allowing trading venues and investment firms to operate across the EU. However, technological development, the increasing complexity of both products and services and the flaws highlighted by the financial crisis led the European Commission to suggest a significant number of revisions to the initial directive in its consultation of 8th December 2010. The result of this consultation and review is the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID II”) . In simple under the MIFID 2 is government is not seeking to make fundamental changes to its structure, but to work within the existing framework. The UK Government believes that this is consistent with minimising the Primary amendments to FSMA and related statutory instrument under MiFID II.

 In the UK Government has Designates the FCA, PRA and the Bank of England as competent authorities for the purposes of MiFID II and MiFIR (I will explain in next section) . In UK the FCA will be principally responsible for supervision of compliance with MiFID II and MiFIR, but it is not 0nly affects the organisational requirements of a number of the banks and all of the major investment firms supervised by the PRA but also touches on CCPs who are authorised and supervised by the Bank of England.

In next section, I will have more details on the instrument under MIfIR compliance. Buyer side and seller side rules and what is the pre-trade and post transparency and any waivers. 

WHAT is the KEY CHANGE in MIFID 1 - the concept of multilateral trading facilities (“MTFs”) and “systematic in sternalisers” (“SIs”) and imposed pre- and post - trade transparency the SIs market makers-matching customer orders internally rather than showing these to the market. Mifid replaces rules in many markets that require trades to be executed at local exchanges. Instead, banks will be allowed to act as "systematic internalisers", So why need MIFID 2, is it extension to MIFID 1 , The MiFID one was to strengthen the single market for investment services and activities, thereby harmonising investor protection and increasing competition in EU financial markets. Many of these aims were achieved, such as allowing trading venues and investment firms to operate across the EU. However, technological development, the increasing complexity of both products and services and the flaws highlighted by the financial crisis led the European Commission to suggest a significant number of revisions to the initial directive in its consultation of 8th December 2010. The result of this consultation and review is the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID II”) . In simple under the MIFID 2 is government is not seeking to make fundamental changes to its structure, but to work within the existing framework. The UK Government believes that this is consistent with minimising the Primary amendments to FSMA and related statutory instrument under MiFID II.

 In the UK Government has Designates the FCA, PRA and the Bank of England as competent authorities for the purposes of MiFID II and MiFIR (I will explain in next section) 

In UK the FCA will be principally responsible for supervision of compliance with MiFID II and MiFIR, but it affects the organisational requirements of a number of the banks and all of the major investment firms supervised by the PRA and touches on CCPs who are authorised and supervised by the Bank of England.

In next article, I will have more details on the instrument under MIfIR compliance. Buyer side and seller side rules and what is the pre-trade and post transparency and any waivers. 

IN NEXT 2 ARTICLE, I will outline following:

·        Headline changes to the Buy-Side Reporting, Off course, I will also touch upon Top Consulting (top 5Cs) view along and the readiness of the Off the shelf solution or system providers in readiness for Pre and post transaction such as UnaVista, bloomberg the LSE London Stock Exchange Group's global hosted platform for all matching, validation and reconciliation needs. What is required to be complaint  in MIFIR II reporting which was not there in MIFIR 1

The number of data fields required on transaction reports is more than doubling from 24 to 65. In addition, many of the existing fields required by MiFID I will be amended to encompass more complexity and a greater breadth of instruments.

There follows a summary of the reporting requirements, and some of the internal and third-party systems that firms will

need to source the new data from.

•   What is Clock Synchronisation which might sounds easy, but could amount to Major IT task, the same as reporting requirements and transparency regulations.

Transaction Reporting Basics, Definition of execution of a transaction, transaction reporting User Pack (TRUP). it can be located here : https://www.fca.org.uk/publication/finalised-guidance/fsa-fg12-07.

   Transmission of order – implications for buy-side. Reporting exemptions and Re-portable instruments Key Principals of the trading Capacity and impact on ‘buyer’/’seller’ fields and validation rules and the Annex II- Data validation rules for transaction reporting - ESMA.Detail Rules can be located here : https://www.esma.europa.eu/sites/default/files/library/validation_rules.xlsx

Financial instruments are legally enumerated in Section C of MiFID Directive supplemented by Articles 38 and 39 of the Regulation (EC) No 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC. Listed below

Instrument and underlying instrument identifiers, Markets in Financial Instruments Directive (MiFID), The list of financial instruments covered has been extended to almost all instruments traded in European markets – with particular emphasis on the OTC derivatives market that was previously out of scope for MiFID I. The only financial instruments that still fall outside MiFIR’s . Not in scope are: Segregated collateral transfers in bilateral transactions (though the exact details of this are still being worked out).+ Financing transactions already covered under the Securities Financing Transaction Regulation (SFTR).+ Give-ups or give-ins of the The issuance, allotment, subscription or exercise of pre-emption rights.