THEMERITS AND DRAWBACKS OF THE MARKETS IN FINANCIAL INSTRUMENTSDIRECTIVE II (MIFID II). As we know, MiFID is the markets in financial instrumentsdirective (Directive 2004/39/EC). It has been put into effect across theEuropean Union since November 2007, brought about substantial changes in themarket.
It regulate investment services by commercial banks and investment companiesand operation of traditional stock exchanges and alternative trading venues1. While MiFID created competition between these services andbrought more choice and lower prices for investors, shortcomings were exposedin the wake of the financial crisis, which has led to problems for ensuringinvestor protection and market surveillance. The reform of the MiFID regime(MiFID II) aims to reinforce the current European rules on securities marketsand address these problems. In July 2014, the European Commission adopted newrules revising the MiFID framework. These consist of a directive (MiFID 2) anda regulation (MiFIR). this amendment has been adopted on 23 July 2016, andMiFID II/MiFIR will start applying on 3 January 2018. Merits MiFID II seeks to improve the competitiveness of EU financialmarkets by creating a single market for investment services and activities andto ensure a high degree of harmonised protection for investors in financialinstruments2.
Firstly, implementation ofMiFID II ensure that organised tradinghappens on regulated platforms, and introduces rules on algorithmic and programtrading, which will benefit for the executionof derivatives. Secondly, MiFIR sets out requirements on disclosure of dataon trading activity to the public and disclosure of transaction data toregulators and supervisors, which make contributions to improve the transparency and oversight of financial markets –including derivatives markets – andaddressing some shortcomings in commodity derivatives markets. Thirdly, MiFIDII makes for enhancing investorprotection and improving conduct ofbusiness rules. Above of all,implementation of MiFID II strengthens the supervision on the financial market.
MiFID II makes its contribution to the dawning era of Big Data – vastexploitable data sets of computerised information – by requiring pre – and post- contract price data to be disclosed and reported to the market for all thesecurities trades it regulates3. 1https://ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/securities-markets/investment-services-and-regulated-markets-markets-financial-instruments-directive-mifid_en#markets-in-financial-instruments-directive-mifid2 https://www.esma.
europa.eu/policy-rules/mifid-ii-and-mifir 3 Kemp, R. (2014). MiFID II–A radical contribution to the development ofdata law?. Computer Law & Security Review, 30(4), 445-446. Drawbacks First of all, MiFID II will significantly increase the operating costs of investment institutions.
As we knowthis regulation have the clear stipulation covering a wide range of corporategovernance, trading venues, algorithmic transactions, direct electronic access,quota and reporting of commodity derivatives positions, trading rules forequity instruments, the transaction record preservation, the investorprotection and the suitability, the best execution, the inducement researchspin-off and so on. Second of all, MiFID II increases the accountabilityof institutional investors, but also expands the scope of regulation of financial products. Formerly MiFID wasonly applicable to the stock market, Mifid II expanded its core principles to”non-equity products”, covering the stock market’s cash andderivative products, fixed income, foreign exchange trading and commoditytrading. This is also the first time that restrictions on over-the-counterbonds and derivatives have been made, and the price transparency and regulatoryrequirements for these transactions are higher.
Regulatory Countermeasuresafter the financial crisis at the both G20 and European determined that marketsneed to turn to greater transparency to reduce systemic risk4. The last but not least, when the MiFID II rules take effect, itwill inevitably result in the leakage of information, and the desire to reducethe information leakage will not exist again. Although the moves to increaseinvestor protection are generally welcome, consistent with the transparencyrequirements has been regarded as costly, technologicallydifficult and not suitable for all trading models. Especially for market participantswho seek to exchange large orders electronically. Summing up, the key rules of Mifid II introduce: Fairer, saferand more efficient markets.
Against the backdrop of demands for improvedinvestor protection and market transparency with respect to trading. MiFID IIis believed to enhance market discipline and stimulate healthy competition.However, consistent with the MiFID II transparency requirements has been seenas costly, technologically difficult and not suitable for all trading models5. Overall,this report envisages significant changes to the business structures, operating models and IT systems offinancial services firms. 4 Mensah, D. (2017). Dark execution strategies under MiFID II: A fewshades lighter?. Journal of Securities Operations & Custody, 9(4), 329-333.
5 MiFID II compliance – are we ready? Lukasz Prorokowski H.L. ProrokowskiConsultancy, Wroclaw, Poland, www.emeraldinsight.com/1358-1988.htm