Markets in Financial Instruments Directive II (MiFID II)

Background information on MiFID

MiFID (Markets in Financial Instruments Directive) is a guideline issued by the EU in 2004 intended to harmonise European financial markets. The goal of this guideline was and still is the creation of more transparent and integrated financial markets enabling securities trading to become as much efficient and economic as possible.

In order to achieve this goal, an extensive catalogue of regulations had been compiled containing among others rules about investor protection - for example a “best execution” and a corresponding documentation. Furthermore, a new definition of trading platforms had been implemented with MiFID (regulated markets, multilateral trading systems, systematic internalisers) and far-reaching transparency regulations for the OTC-Trading (over-the-counter) had been introduced, too.

In the course of the financial crisis of 2008 the weaknesses of this regulation came to light, originating from a higher fragmentation of trading places, the occurrence of new technologies and financial products, as well as oversized margin of discretions of the member states.

From MiFID I to MiFID II and MiFIR

The conclusions gained from the financial crisis lead to a revision of MiFID in 2011, which became known as MiFID II, as well as additional regulations by the name of MiFIR (Markets in Financial Instruments Regulation). This new regulation has been accepted by the European Parliament on April 15, 2014.

A new market structure was introduced with MiFID II/MiFIR in order to close legal and regulatory gaps.

Trade should, if possible, only occur on and with regulated platforms. In the course of this, so-called organized trading systems (Organized Trading Facility, OTF) were implemented, ensuring equal competitive conditions in trading with non-equity instruments.

Furthermore, guidelines are introduced with MiFID II / MiFIR, regulating OTC-trade with derivatives. Starting 2018 therefore all financial and non-financial counter parties are obliged to trade (all until this date OTC-traded) derivatives on one of the designated, organised markets.

One important key aspect is the expansion of pre- and post-trade regulations of transparency data and the obligation to report trading. This includes the precise identification of the trade partner.

Impact on the LEI

The EU determines in MiFID II that a Legal Entity Identifier (LEI) is to be used in order to precisely identify counter parties participating in trading. Within MiFID II the LEI accomplishes two tasks. On the one hand the LEI serves as a mutual and precise identifier for the counter parties. On the other hand the LEI plays an integral part in the notifications and recordings of transactions that have to be performed by trading platforms. Due to the fact that the new regulations issued by MiFID II come into force on January 3, 2018, trade without an LEI is henceforth not possible.

Directive (PDF 1.7MB)