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MIFID – implementation day has arrived! |
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The 1st November 2007 marked the implementation of the European
Economic Area (“EEA”) - wide Markets in Financial Instruments Directive
(“MIFID”) in the UK. David Glass of London based law firm Pritchard
Englefield reviews the objectives of MIFID.
This was the required implementation date under EEA law but most other countries in the EEA have failed to meet the deadline.
The objectives of MIFID are many and include:
1. Simplifying the “passporting” of core investment services between EEA States;
2. extending the rights of “home countries” to regulate authorised firms when marketing in other EEA States;
3. reducing the dominance of “regulated exchanges” by encouraging the
development of “multilateral trading facilities” (“MTFs”) and
authorising suitable firms to act as “systematic internalizers” (i.e.
to create trades within different parts of their own organisations
rather than having to trade on a regulated stock market);
4. tightening “best execution” rules relating to client requirements
and re-categorising clients as retail clients, professional clients or
eligible counterparties;
5. integrating the EEA’s capital markets through a single set of conduct of business rules; and
6. increasing the transparency of EEA’s markets by tightening
transaction reporting rules and promoting a diversity of transparent
reporting arrangements in place of the historic concentration of
trading and data within regulated exchanges.
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MIFID, which essentially replaces the EEA-wide Investment Services
Directive, has benefited the IT industry enormously as banks and other
financial services’ institutions have struggled to up-date their
systems to meet the requirements of the new regime.
MIFID also goes hand in hand with enhancements to the capital adequacy
requirements for authorised firms promoted by the Capital Requirements
Directive.
MIFID is doing for the EEA what Regulation NMS (the so-called
Regulation National Market System) has been doing in the US for
financial services’ trading since its introduction in March 2007.
The present thinking is that it will take one or two years before the
real effect of MIFID is felt by the EEA securities industry but the
present belief is that the heavy costs of complying with MIFID may mean
that the number of major financial services trading houses will be
reduced in due course – which might be seen to be the opposite of what
MIFID intended, namely, to increase choice for clients!
MIFID is part of the EEA-wide financial services action plan and there
is already talk of extending MIFID to cover bond trading and other debt
instruments not presently covered by MIFID.
© November 2007 David Glass
All Rights Reserved.
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