Friday, July 19, 2024

MiFID II

In this article, We learn about “MiFID II”.Let’s Go!

MiFID II is a legislative framework developed by the European Union (EU) to regulate financial markets in the European Economic Area (EEA) and improve investor protection.

The aim is to standardize practice across the EU and restore industry confidence.

One of the most influential laws enacted by the European Union to regulate the investment field is the Markets in Financial Instruments Directive.

Commonly known as MiFID, the directive has been in place since 2007 and has dramatically changed the way the investment industry operates.

The original Markets in Financial Instruments Directive (MiFID) came into effect in November 2007.

The ensuing global financial crisis exposed some of the weaknesses in its provisions.

It focuses too narrowly on equities (ignoring fixed income instruments, derivatives, currencies and other assets) and does not cover transactions with companies or products outside the EU, so the rules on these are governed by Individual member decision.

Recently, the legislation underwent a significant update and is now known as “MiFID II“.

MiFID II is intended to be a stronger version of the previous law, focusing primarily on enhancing customer protection, making trading platforms more open and ensuring investment portfolios are properly managed.

MiFID II harmonizes the application of supervision across member states and expands the scope of regulations.

With the updated version of MiFID, trading transactions and information will be more transparent than ever.

MiFID II requires that all prices be clearly announced before and after a transaction is completed, regardless of the type of trading platform on which the transaction occurs.

This gives investors access to a whole new range of data and information and enables them to make more informed decisions about their clients’ investment portfolios.

Additionally, the new and improved MiFID II will cover more types of financial instruments (not just stocks).

Stocks, commodities, debt instruments, futures and options, exchange-traded funds, and currencies all fall under its purview.

If the product is sold in an EU country, the product is covered by MiFID II

Even if the trader wishing to buy is located outside the EU.

Sellers will be required to clearly state their prices, as well as other relevant information, before and after all transactions.

The main purpose of this new requirement is to allow retail companies and their customers to find the best deals by comparing prices and other factors from newly available data.

MiFID II now also covers structured deposits. Previously, structured deposits were not regulated in the EU, although they were a fairly common investment and presented some protection challenges.

With the new regulations in place, companies selling and buying structured deposits will have to comply with certain rules regarding interaction with customers and oversight by regulators, as well as various other regulations.

Another big change under MiFID II is that some firms will be prohibited from accepting payments or benefits (“inducements”) from third parties.

As a result, if an individual (such as an adviser) or company provides financial advice on behalf of another person, they will no longer be able to keep any payments received.

Instead, they will be forced to pass this payment on to actual investors. The regulation marks a major change for Europe’s financial industry.

MiFID II not only covers almost all aspects of financial investing and trading, it also covers almost all financial professionals within the EU.

Bankers, traders, fund managers, exchange officials and brokers and their companies must comply with its regulations. The same goes for institutional and retail investors.

For retail investors, the law will significantly strengthen the protection of retail investors and will strictly limit the types of financial instruments that retail investors can complete transactions without consulting a trader or similar professional.

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