MiFID

The Markets in Financial Instruments Directive

Over past few years there has been a structural reorganisation of the European financial market leading up to the creation of a truly integrated and competitive financial market through the establishment of harmonised European rules.  Precisely with a view to expediting and making it easier to monitor the process of setting up the internal capital market, in May 1999 the European Commission defined a Financial Services Action Plan (FSAP) identifying the legislative measures to be adopted and the optimal timing so as to obtain full benefit from the introduction of the Euro and guarantee the stability and competitiveness of the European Union’s financial markets.  The Plan’s ultimate aim is to encourage integration of the financial markets and the harmonisation of supervisory rules between individual member States in order to ensure a level playing field for all parties concerned.

Of the directives issued under the FSAP, undoubtedly the most important and the one which is likely to have a major impact on the operations of the financial markets and their participants is the new directive 2004/39/EC pertaining to the financial instruments markets, better known by the name of MiFID (Markets in Financial Instruments Directive).

What is MiFID?

This directive, approved by the European Parliament and Council on 20 April 2004, repealed the previous directive 93/22/EC, referred to as ISD (Investment Services Directive), which on the one side appeared unable to provide an effective framework for carrying on cross-border investment activities within the European Union, and on the other failed to establish clear basic rules with regard to competition between trading infrastructures.  The MiFID is therefore very different and introduces notable changes with respect to directive 93/22/EC, featuring a greater level of detail as regards not only the aspects already considered by the ISD but also the areas subject to EC regulation for the first time.

When will it come into force?

The transposition of MiFID into national law was originally scheduled to be completed by April 2006; however, in view of the substantial impact on the legislation of member countries, the deadline for implementation of MiFID was extended.  National implementation legislation must be enacted by 30 September 2007, while market participants will be required to comply with the new rules starting from 1 November 2007.

What are the objectives of MIFID?

MiFID aims to promote the creation of integrated and efficient financial markets and to ensure the level of harmonisation required to offer investors a high degree of protection and allow investment firms to perform services throughout the European community (so-called ‘level playing field’).

What are the changes introduced by MIFID ?

The most significant changes affecting financial intermediaries include those relating to organisational requirements, conflicts of interest, rules on incentives, classification of clients into retail, professional, eligible counterparties, assessment of the adequacy and appropriateness of investment services provided to clients, investment advisory services and, last but not least, best execution rules aimed at ensuring the best execution of clients’ orders.

There are several rules affecting the markets, which provide for elimination of the obligation to concentrate trading on regulated markets (“concentration rule”); the new classification of trading venues (into regulated markets, multilateral trading facilities (MTFs) and systematic internalisers); pre-trade and post-trade market disclosure transparency requirements; the norms concerning the admission of financial instruments to regulated markets and the rules for the admission of intermediaries to regulated markets and MTFs; transaction reporting requirements and the rules on clearing and settlement systems.

Borsa Italiana has published documentation and information concerning the new directive in the Speciale MiFID section of its website.