The review of MiFID1 commenced in 2010 and focused on the areas of MiFID1 considered in need of improvement, in particular investor protection, transparency and the stability and functioning of the EU financial system. It also sought to take account of market structural developments and new methods of trading, for example dark pool trading of equities and high frequency trading (HFT). Many issues have been heavily politicised, including the introduction of new rules on position limits and reporting for commodity derivative contracts.
The European Commission issued proposals for an amended Directive and a new Regulation in late 2011. After two years of inter-institutional negotiation, the Level 1 texts of MiFID2 (Directive 2014/65/EU on markets in financial instruments) and MiFIR (Regulation (EU) No. 600/2014 on markets in financial instruments) were finalised and published in the Official Journal of the EU in 2014.
The Level 1 texts entered into force on 2 July 2014 and will take effect on 3 January 2018. Member States must transpose MiFID2 into their national legislation by 3 July 2017. MiFIR is a directly applicable Regulation so does not require transposition.
Member States, including the UK, are currently undertaking their own implementation projects. In the UK, a number of areas of the text are likely to be gold-plated to apply to the collective portfolio management activities of AIFMs and UCITS management companies, including rules for investment research, best execution, and retention of telephone conversations and electronic communications.
- Standard client certification for MiFID2 DEA FIA template questionnaire – MFA and AIMA (08 December 2017)
- AIMA DDQ for Transaction Cost Analysis Vendors (28 November 2017)
- Template Research Charge Collection Agreement (RCCA) - AFME, IA and AIMA (13 November 2017)
- MiFID2 Commodities Position Reporting and Limits - AIMA Guidance Note (26 September 2017)
- AIMA MIFID2 Best Execution Guide for Investment Managers (14 July 2017)
- AIMA MiFID2 Vendor List (06 March 2017)
- AIMA MiFID2 Guide for Investment Managers (03 February 2017)
- AIMA MiFID2 Guide for Investment Managers - Executive Summary (03 February 2017)
AIMA responses and other documents
- Overview of the new disclosure obligations under PRIIPs and MiFID2 (12 January 2018)
- Notice of MiFID2 implementation challenges - AIMA letter - FCA (21 December 2017)
- MiFID2 Implementation: Hedge Fund Industry State of Play (13 December 2017)
- Consultation on guidelines for MiFID2 suitability requirements - AIMA response - ESMA (13 October 2017)
- VAT on research fees under MiFID2 - AIMA Briefing Note (25 September 2017)
- MiFID2 one page guidance and timeline document on Local Authority opt-up process (17 August 2017)
- MiFID2 standard form request and consent letter for Local Authority clients (17 August 2017)
- MiFID2 standardised industry assessment questionnaire for Local Authorities (17 August 2017)
- Consultation Paper on the trading obligation for derivatives under MiFIR - AIMA response - ESMA (26 July 2017)
- FCA response to AIMA letter on application of MiFID2 to third-country delegates (19 July 2017)
- MiFID2 Policy Statement 2 - AIMA Summary - FCA (05 July 2017)
- MiFID2 Implementation Survey 2017 (20 June 2017)
- Application of MiFID2 to third-country delegates - AIMA response - FCA (21 April 2017)
- CP16/43 MiFID2 Implementation Consultation Paper 4 - Joint response - FCA (15 February 2017)
- CP16/29 MiFID2 Implementation Consultation Paper 3 - Joint response - FCA (20 December 2016)
MiFID / MiFIR webinars
- MiFID2 Solutions Series - Communications surveillance (01 September 2017)
- MiFID2 Solutions Series - Best practices in approaching research unbundling (27 July 2017)
- MiFID2 Solutions Series - Payment for research - password 25706439 (01 November 2016)
- MiFID2 Solutions Series - MiFIR transaction reporting webinar (09 June 2016)
- MiFID2 Solutions Series - MiFIR transaction reporting - slides (01 June 2016)
- AIMA MiFID2 Webinar - Key issues for Level 2 (01 September 2014)
MiFID2 / MiFIR: what they mean for alternative asset managers
Relevant developments contained within MiFID2/R include:
Algorithmic trading/HFT and market microstructure – introducing new notification, organisational and transparency requirements for firms utilising an algorithmic trading technique, including an EU definition of HFT. Trading venues are also subject to stricter systems and controls requirements regarding testing and systems resiliency, as well as rules for maximum order to trade ratios and minimum tick sizes;
Commodities – the narrowing of exemptions for commodity derivatives traders, the broadening of what constitutes a ‘financial instrument’ and the introduction of quantitative position limits and reporting for venue traded commodity derivatives and economically equivalent OTC contracts;
Derivatives and STP – the trading obligation for venue traded derivatives, the clearing obligation for non-OTC derivatives and a requirement for the straight-through-processing (STP) of all cleared derivatives;
Investor protection – strengthened investor protection rules, including heightened standards for best execution and related disclosures. Portfolio management firms are also prohibited from accepting any monetary or non-monetary payments from third parties - with the narrow exception of certain minor non-monetary benefits - and the requirement that remuneration and performance assessment policies do not conflict with the duty to act in the best interests of clients. The use of dealing commissions to pay for investment research is covered here;
Third-countries regime – provides rules for third country investment firms, CCPs and trading venues to provide services on the same regulatory terms as EU established entities, subject to the European Commission determining that their third country jurisdictions’ rules and supervisory frameworks are ‘equivalent’;
Transparency and transaction reporting – increased transparency requirements for trading venues and investment firms, in particular, introducing new pre- and post-trade transparency for non-equity instruments, a volume cap on equity transparency waivers, greater information to included within transaction reports (including flags for algorithmic trading and the use of waivers) and organisational rules for data services providers.
Other developments include:
Execution only services - narrowing of the list of products that investment firms may provide on an execution-only basis, thus preventing structured UCITS from being sold execution only;
Management bodies – the requirements on management introduced for banks under CRR are now being extended to investment firms under MiFID2, among other things, requiring members of management bodies to be of the requisite calibre, limited in their number of directorships and to act with honesty and integrity.
Open access – new rules for the transparent and non-discriminatory access by trading venues to CCPs and vice versa, including access to information and licences for benchmarks;
Product governance – all investment firms that manufacture or sell products will be expected to have explicit arrangements for product governance, such that firms understand the nature of the products they are manufacturing and/or selling and that they are suitable for the clients to which they are sold;
Trading venues – the introduction of a new trading venue for non-equity instruments – the Organised Trading Facility – and expansion of the role of systematic internalisers to cover all equity and non-equity instruments.
Commission Delegated Directive with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits (April 2016)