The European Commission announced on 14 January 2014 that the European Parliament and Council had reached an agreement in principle on revised rules for markets in financial instruments (MiFID II). Under the revised regime, limits will be placed on taking financial positions in commodity derivatives, with a view to preventing market abuse and helping to restore investor confidence following the financial crisis.
The new rules will apply to investment firms, market operators and services providing post-trade transparency information in the EU. They are set out in two pieces of legislation: (a) a directly applicable regulation dealing inter alia with specific requirements regarding the provision of investment services, the scope of exemptions from the current MiFID I and transparency and access to trading venues (MiFIR) and; (b) a directive (MiFID II) governing disclosure of trade transparency data to the public and transaction data to competent authorities, authorisation and organisation of trading venues and investor protection, the mandatory trading of derivatives on organised venues, and specific supervisory actions regarding financial instruments and positions in derivatives.
The key elements of the following are the following:
1. An introduction of a market structure framework which closes loopholes and ensures that trading, wherever appropriate, takes place on regulated platforms. To this end, it subjects shares to a trading obligation. It also introduces a new multilateral trading venue, the Organised Trading Facility (OTF), for non-equity instruments to trade on organised multilateral trading platforms.
2. Increasing equity market transparency and for the first time establishes a principle of transparency for non-equity instruments such as bonds and derivative.
3. Providing for strengthened supervisory powers and a harmonised position-limits regime for commodity derivatives to improve transparency, support orderly pricing and prevent market abuse.
4. A new framework will improve conditions for competition in the trading and clearing of financial instruments and establishes a harmonised EU regime for non-discriminatory access to trading venues and central counterparties (CCPs).
5. Introduction of trading controls for algorithmic trading activities which have dramatically increased the speed of trading and can cause systemic risks.
6. Stronger investor protection is achieved by introducing better organisational requirements, such as client asset protection or product governance, which also strengthen the role of management bodies. The new regime also provides for strengthened conduct rules such as an extended scope for the appropriateness tests and reinforced information to clients. Concerning Packaged Retail Investment Products (PRIPS), the new framework also covers structured deposits and amends the Insurance Mediation Directive (IMD) to introduce some rules for insurance-based investment products.
7. Strengthening the existing regime to ensure effective and harmonised administrative sanctions.
8. A harmonised regime for granting access to EU markets for firms from third countries is based on an equivalence assessment of third country jurisdictions by the Commission. The regime applies only to the cross-border provision of investment services and activities provided to professional and eligible counterparties. For a transitional period of three years and then pending equivalence decisions by the Commission, national third-country regimes continue to apply.
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