Markets in Financial Instruments Directive

A structural reorganisation of the European financial market has been taking place over the last few years, in order to create a truly integrated and competitive financial market through the identification of uniform European rules. To accelerate and facilitate monitoring of the process to establish the domestic capital market, in May 1999 the European Commission defined a Financial Services Action Plan (FSAP) that identified the legislative measures to be adopted and the optimal timing designed to benefit in full from introduction of the euro, as well as ensure the stability and competitiveness of the financial markets of the European Union. The ultimate goal of this Plan is to encourage   the integration of financial markets  and   harmonisation of the supervisory rules   among the individual member States, in order to ensure a  level playing field  for all parties concerned.
Among the directives included in the FSAP, the most important is certainly Directive 2004/39/EC, better known as the MiFID (Markets in Financial Instruments Directive), which has influenced the activities of financial markets and their operators.

What is the MiFID?
This directive, approved by the European Parliament and the Council on 20 April 2004, repealed the first Investment Services Directive – ISD (Directive 93/22/EC), which was no longer able to provide an effective framework for cross-border investment activity within the EU and, additionally, did not establish clear basic rules for competition among traders. As a consequence, the MiFID is very different and innovates significantly compared to Directive 93/22/EC, containing a greater level of detail not only on subjects already tackled by the ISD, but also in areas subjected to Community regulation for the first time.

What are the objectives of the MiFID?
The MIFID aims to encourage the creation of integrated and efficient financial markets , as well as ensure the degree of harmonisation needed to offer a high level of protection to investors and allow investment firms to provide services throughout the European Union (in other words, a level playing field ).

What changes did the MiFID make?
Financial intermediaries saw changes in the areas of organisational requirements, conflicts of interest,  incentives, the classification of clients as retail, professional and eligible counterparties, assessment of the suitability and appropriateness of the investment services provided to clients, investment advice and, last but not least, the governance of best execution to ensure the best execution of client orders.
Several market rules envisage removal of the obligation to concentrate trades in regulated markets (“concentration rule”); new trading venues (represented by regulated markets, multilateral trading facilities (MTF) and internalisers); pre-trade and post-trade market information transparency; provisions for the admission of financial instruments to regulated markets, as well as rules for the admission of operators to regulated markets and MTFs; rules for communicating transactions to the competent authorities (transaction reporting) and rules applicable to clearing and settlement systems.