MiFID II (Markets in Financial Instruments Directive II)

MiFID II (Markets in Financial Instruments Directive II) is a comprehensive regulatory framework introduced by the European Union (EU) to regulate financial markets and promote a more transparent, competitive, and reliable environment. MiFID II came into effect on January 3, 2018, replacing the previous MiFID regulation.

The primary objective of MiFID II is to enhance transparency, investor protection, and market integrity in financial markets. To achieve this objective, MiFID II encompasses a range of regulations in the following areas:

1. Trading Transparency: MiFID II introduces various regulations to make trading of financial instruments more transparent. These regulations include increased reporting of trades in instruments such as stocks, bonds, derivatives, and commodities, publication of trading volumes, and making trading data more accessible in general.

2. Investor Protection: MiFID II includes several regulations to better protect investors. These regulations entail stricter compliance and reporting requirements for investment service providers, an obligation to provide investors with more information, enhanced risk assessments, and improved execution policies.

3. Market Structure: MiFID II incorporates regulations related to market structure to promote more competitive and efficient financial markets. These regulations encompass tighter oversight of trading platforms and liquidity providers, increased transparency, and measures to control dark pools and internalized trades.

4. Algorithmic Trading: MiFID II aims to regulate algorithmic trading more effectively. Algorithmic trading refers to the automated execution of trading transactions through computer programs. MiFID II introduces various regulations to enhance transparency in algorithmic trading, strengthen risk management and controls, and prevent market manipulation.

MiFID II is a significant regulatory package in the European Union’s financial markets. It aims to promote greater transparency, competitiveness, and investor protection in financial markets. Simultaneously, it imposes stricter regulations and compliance requirements on financial institutions.