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MiFID II is coming! – part 3: security mechanisms

06 Nov 2017

MiFID II is coming! – part 3: security mechanismsDeutsche Börse Group has you well prepared

European financial markets are facing fundamental changes. The level of regulation is increasing. For market participants, this translates into tightened transparency and reporting obligations for almost all kinds of transactions. A wide range of new requirements have to be fulfilled with regard to both pre-trading and post-trading. In many places, preparations are already well underway, as the next key date is just around the corner: on 3 January 2018, the revised Markets in Financial Instruments Directive (MiFID II) and the accompanying Markets in Financial Instruments Regulation (MiFIR) will take effect as applicable law. Under MiFID II and MiFIR, the previously applicable reporting and designation obligations will be extended to cover almost all financial instruments and apply to all investment firms: a massive challenge for our market participants.

MiFID II/MiFIR provide for various new or extended security mechanisms designed to improve the integrity and stability of the financial markets, such as the introduction of position limits for all commodity derivatives contracts from 3 January onwards, meaning that positions must be reported and upper limits observed. This is why EEX, Deutsche Börse Group’s energy exchange, is introducing an early warning system to alert customers to any impending limit breaches.

Furthermore, the new regulation also comes with extended order-to-trade ratio (OTR) requirements. The OTR means that the ratio between the number of orders that a market participant enters into the system for a certain instrument and the number of actually closed transactions must not exceed a certain value. This prevents trading participants from entering an excessive number of orders, which would hamper orderly pricing and increase system load. At Deutsche Börse Group, several intraday reports help trading participants avoid limit breaches.

Moreover, MiFID II/MiFIR introduces additional control mechanisms. For the derivatives market, the new Maximum Order Value Check functionality, stipulated by the regulator, is implemented via T7® Release 6.0; on the spot market, the Maximum Order Quantity Check is launched as a new functionality. Both functionalities ensure that orders with extreme values are stopped. Most other control mechanisms such as Price Collar Checks are already part of the respective trading systems. The new requirements fit into Deutsche Börse Group’s integrated security architecture, which ensures orderly trading along the entire transaction chain.

In short: Deutsche Börse has you well prepared for MiFID II and MiFIR.

Do you have any further questions? Please do not hesitate to contact us! For more comprehensive information on your specific area of activity and for the relevant contact data, please see the links below.

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