The revised Markets in Financial Instruments Directive (MiFID II) and the accompanying Markets in Financial Instruments Regulation (MiFIR) regulate the provision of investment services in a multitude of financial instruments at regulated trading venues as well as in over-the-counter (OTC) trading.

Objective

The new Directive and Regulation have fundamentally transformed the European securities market by expanding transparency provisions, strengthening the stability and integrity of the financial market infrastructure, revising the markets’ microstructure (market making, algorithmic trading, requirements regarding the security mechanisms of trading venues and market participants, tick sizes) and aiming at improved  quality and availability of market data.

However, having collected experience with the practical application of the MiFID II/MiFIR framework since 2018, there is growing discontent that some important political objectives have not been fully met. In particular the fragmentation of equity market structures and a lack in off-venue data quality have been observed against the background of the staggering number of registered execution venues in the EU which are subject to different regulatory requirements. Without establishing a level playing field and improving transparency and data quality, EU capital markets will not be able to benefit from a centrally consolidated overview of trading data which is a key objective within the legislation. In addition, the adequacy of open access provisions for exchange traded derivatives is being questioned, taking into account that forcing the interconnectedness of systemically important financial market infrastructures in derivatives could potentially pose threats to market integrity and stability, and hamper innovation and competition – especially in distressed market conditions as observed during the Covid-19 crisis and in a post-Brexit world.

MiFID II/MiFIR is the cornerstone of the EU regulatory framework for the trading landscape. Notably in light of a new political and economic reality at both global and EU level, it will be essential to ensure that it is fit for purpose. While the capital markets recovery package (including the MiFID II “quick fix”) following the Covid-19 crisis already addressed some constraints observed in the areas of investor protection and commodity derivatives, the broader review of the MiFID II/MiFIR framework will be an important milestone to make the European trading landscape even more stable and efficient.

Timeline

The Directive and the Regulation entered into force on 1 July 2014. The provisions had  to be transposed into national law by 3 July 2017. The German Bundestag passed the Second Financial Market Amendment Act on 23 June 2017 for this purpose. The new framework applies from 3 January 2018..

The MiFID II/MiFIR framework foresees a series of mandated review reports on different elements of the legislation to assess their effectiveness and functioning.  As of 2019, both ESMA and the European Commission have to compile a number of these reports to provide a basis for a review of MiFID II/MiFIR. In spring 2020, the European Commission has also conducted a public consultation on the priorities of such a review. However, since the Covid-19 pandemic required a swift policy response to support the economy’s recover, it has been decided to split the review into a limited set of targeted amendments (“quick-fix”) in the second half of 2020 and a broader review being postponed to the end of 2021.