What is MiFID II?
Markets in Financial Instruments Directive II - MiFID II – is an EU directive that revises MiFID I, strengthening and broadening the provisions around achieving a fairer market structure. As a directive, it only takes effect once transposed into the national laws of all EU member states.
What’s the current status of MiFID II?
EU Member States will have to have transposed the provisions of the MiFID II directive into national law by 3rd July 2017. It will come into full effect on 3rd January 2018.
What’s new under MiFID II?
According to the European Commission, a safer, sounder, more transparent and more responsible financial system that works for the economy and society as a whole through:
- More robust and efficient market structures
- Leveraging technological innovations
- Increased transparency
- Reinforced supervisory powers and a stricter framework for commodity derivatives markets
- Stronger investor protection
When do I need to start working on MiFID II?
You – or your firm – have probably started already. With the system freezes that traditionally occur towards the end of the calendar year, and the testing that is required before implementation, development will probably have to be completed before the end of Q3. Given the dependency on various deliverables by trading venues and other suppliers, the development window has been somewhat compressed.
As a result of Brexit, the UK will leave the EU - so surely there’s no need to comply with MiFID II?
The UK will still be an EU member on 3rd January 2018, and therefore all UK based firms will have to comply with MiFID II in the short to medium term. In the longer term, the UK will no doubt seek some form of equivalence for UK based firms, and this will almost certainly be based on compliance with the applicable EU Directives and Regulations such as MiFID II along with many others.
How will MiFID II affect my firm?
It depends what type of firm you work for. There are specific provisions that apply to liquidity venues, systematic internalisers, direct electronic access providers, algorithmic traders and high frequency algorithmic trading firms. Then there are generic provisions that apply across several different types of firm. You will need to understand which of these categories your firm falls into, before you can identify the particular manner in which MiFID II will affect your firm.
What different types of firms are there?
- Market Operators – these firms operate liquidity venues. Liquidity Venues will be either a Regulated Market (RM), Multi-Lateral Trading Facility (MTF) and a new type of venue – Organised Trading Facility (OTF).
- Investment Firms – these firms execute trades on the financial markets. Investment Firms will be either SIs, algorithmic trading firms, HFTs, DEA providers and third country firms, amongst others.
What’s the difference between those kind of firms?
- Regulated Markets – traditional stock exchanges, which issue securities and facilitate their trading
- Multi-Lateral Trading Facilities – are similar to stock exchanges, except they only act as a market to trade securities – new securities cannot be issued on them
- Organised Trading Facilities – newly created under MiFID II. Facilitates multiple third-party trading in bonds, structured finance products, emission allowances and derivatives
- Investment Firms – any person or business whose regular occupation is the provision of investment services to 3rd parties or undertakes investment activity on a professional basis
- Systematic Internalisers – type of investment firm which deals on its own account when executing client orders outside a regulated market
- Algorithmic Trading Firms – investment firms that use computer algorithms to initiate trades
- High Frequency Trading Firms – Algorithmic trading firms that focus on low latency as their primary trading strategy
- Direct Electronic Access Providers – members of trading venues that permit others to use its trading code
- Third Country Firms - are investment firms based in non-EU member states
How can Fixnetix help trading firms comply with MiFiD II?
As a technology provider for both Market Operators and Investment Firms, Fixnetix can offer a number of services and solutions around MiFID II compliance, including:
- Data provision from new trading venues, instruments & fields
- Connecting to new trading venues
- Upgrading market data as venues do
- Pre-trade risk checks & compliant market gateways
- Through existing iX-eCute and iX-EMS products
- Trade monitoring with real-time GUIs and ‘kill switches’
- Through existing iX-Eye command & control GUI
- Secure data storage
- Flexible cloud based solutions available via Fixnetix partners
- Clock synchronisation
- Fixnetix Precision Time Protocol solution based on GPS
- Outsourcing mission critical systems
- Freedom from the pressures of regulation and cost, allowing you to ‘change the bank, run the bank’.