The new market structure introduced by MiFID II/MiFIR is designed to close legislative/regulatory gaps. It shall ensure that trading, where appropriate, takes place on regulated platforms. For that purpose, a share trading obligation has been established. Investment firms executing client orders in equity and equity-like instruments via an internal matching system on a multilateral basis will have to be authorised as a Multilateral Trading Facility (MTF).

To create a level playing field with Regulated Markets (RMs) and MTFs, the so-called Organised Trading Facility (OTF) has been introduced for non-equity instruments (to be traded on an organised multilateral trading platform). OTF operators may execute trades at their discretion however not against own capital, including matched principal trading. Besides the trading obligation for shares, a trading obligation for derivatives which are eligible for clearing under the European Markets Infrastructure Regulation (EMIR) and which are sufficiently liquid has also been established. > More

MiFID II/MiFIR introduced several organisational requirements associated with the protection of client assets or product governance including the establishment of a compliance function monitoring the development and periodic review of product governance. The new regime also provides for strengthened conduct rules such as an extended scope for appropriateness tests and reinforced information to clients.

Independent advice is clearly distinguished from non-independent advice and limitations are imposed on the receipt of commissions (inducements). MiFID II/MiFIR also introduce harmonised powers and conditions for ESMA to prohibit or restrict the marketing and distribution of certain financial instruments in well-defined circumstances and similar powers for the European Banking Authority (EBA) in the case of structured deposits. Concerning Packaged Retail Investment Products (PRIPs), the new framework also covers structured deposits and amends the Insurance Mediation Directive (IMD) to introduce some rules for insurance-based investment products.

A harmonised regime for granting access to EU markets for firms from third countries is based on an equivalence assessment of third country jurisdictions by the Commission. The regime applies only to the cross-border provision of investment services and activities provided to professional and eligible counterparties. For a transitional period of three years and then pending equivalence decisions by the Commission, national third-country regimes continue to apply. > More

MiFID II/MiFIR aims to increase equity market transparency and introduce a transparency regime for non-equity instruments such as bonds and derivatives. For equities, a double volume cap mechanism limits the use of reference price waivers and negotiated price waivers (4 per cent per venue cap and 8 per cent global cap) together with a requirement for price improvement at the mid-point for the former. Large-in-scale waivers and order management waivers remain the same as under MiFID I.

MiFID II/MiFIR also broaden the pre- and post-trade transparency regime to include non-equity instruments, while pre-trade transparency waivers will be available for large orders, requests for quotes and voice trading. Post-trade transparency is provided for all financial instruments with the possibility of deferred publication or volume masking as appropriate.

Trading venues have been obliged to make pre- and post-trade data available on a reasonable commercial basis. Systematic Internalisers and investment firms have to provide post-trade disclosure via an authorised publication arrangement (APA). > More

Measured by the operational challenges it implies, the obligation to report transactions according to Art. 26 MiFIR clearly belongs to the most far-reaching provisions under MiFID II/MiFIR. In addition to the expansion in scope regarding reportable instruments and transactions or firms concerned, the degree and the kind of detail required constituted a paradigm change.

Investment firms obliged to report will be apprehensive of both the fact that they do not obtain some of the reportable data required and the fact that some of the data is sensitive third-party data the dissemination of which may potentially violate privacy rules. It may also unintentionally uncover trade secrets to a third party if an investment firm chooses to delegate its reporting to an appropriate provider.

Firms will also need to continuously assess their reporting framework by establishing a testing mechanism. > More