Article Post on 17 February 2014

Agreement on core rules of the second Markets in Financial Instruments Directive (MiFID II)

On 14 January 2014, the European Parliament and the Council have reached an agreement in principle on updated rules for the market in financial instruments.

These new rules would improve the way capital markets function to the benefit of the real economy and establish a safer, more open and more responsible financial system. They would also (i) strengthen investor protection by imposing better organizational requirements (such as client asset protection), (ii) complement the clearing requirements under the European markets infrastructure Regulation (EMIR), (iii) reinforce and harmonize administrative sanctions, (iv) introduce trading controls for algorithmic trading activities by requiring all algorithmic traders to be regulated and to provide liquidity when carrying-out market-making strategy, (v) impose limits on commodity derivates and (vi) increase the equity market transparency regime and for the first time establish a principle of transparency for non-equity instruments (such as bonds and derivates). Furthermore, MiFID II would confirm the limitations on the receipt of commissions (i.e. ban on inducements) for independent financial advisors. Finally, MiFID II would introduce a new multilateral trading venue, the Organized Trading Facility (OTF), for non-equity instruments to trade on organized multilateral trading platforms.

Despite this common position, there is a lot of work still to be carried out in order to complete and finalize the relevant legislative framework. MiFID II, which will probably not come into effect before the end of 2015 or early 2016, will amend and extend the Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instrument and will then also require an implementation into Luxembourg law by amending the relevant national laws.

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