Thursday, June 20, 2013

E.U. Council Reaches Agreement to Move Legislation Amending MiFID

After months of discussions, the Council of the European Union has reached agreement on legislation to amend the Markets in Financial Instruments Directive, 2004/39/EC, MiFID. The changes would reform OTC derivatives, regulate high frequency/algorithmic trading, enhance pre-trade transparency, and provide clear operating rules for all trading activities. The agreement paves the way for negotiations with the European Parliament on finalizing the legislation. The European Commission's overriding objective is to provide a single, predictable set of rules for firms operating throughout the EU and greater security for consumers buying investment services.

Specifically, the legislation would enhance transparency around dark pools and limit dark pool trading, which is trading where stocks are not traded in a lit order book. The legislation will provide a robust and efficient market structure with the introduction of a new type of trading venue, the Organized Trading Facility (OTF). It will facilitate better access to capital markets for small- and- medium sized enterprises and provide non-discriminatory open access to trading venues and central counterparties. The legislation will contain new safeguards to take account of technological developments such as high frequency algorithmic trading. There will be stronger investor protection under the amended Directive and new rules on corporate governance and managers’ responsibility. Importantly, the changes set up an enhanced framework for derivatives markets.

MiFID, which took effect on November of 2007, is a sweeping reform of financial services regulation in the European Union. MiFID is a far-reaching piece of legislation that sets out a comprehensive regulatory regime covering investment services and financial markets in the European Union. It contains measures which will change and improve the organization and functioning of investment firms, facilitate cross-border trading and thereby encourage the integration of EU capital markets. At the same time, it ensures strong investor protection with a comprehensive set of rules governing the relationship that investment firms have with their clients.