Date: 10th November 2017
Applied since 2007, the Markets in Financial Instruments Directive (MiFID) constituted the EU regulatory basis for practicing investment services and trading financial instruments within the Common market. This legislative instrument has regulated the markets based on the four principles of integration, transparency, efficiency and fairness.
In 2014, the MiFID underwent a revision, resulting in the adoption of two new pieces of legislation, i.e. the Markets in Financial Instruments Directive II (MiFID II) and a homonymous Regulation (MiFIR).
Whereas MiFIR concerns data reporting standards for traders in regulated markets, MiFID is the instrument that actually regulates the markets by setting out conduct of business rules, organisational provisions, licensing requirements for financial services providers and prerequisites for financial instruments. MiFID II expands the scope of MiFID inter alia by shining light on sectors that escaped the scope of application as foreseen in the initial framework.
One of the previously unregulated markets is that of private institutional trading. Commonly referred to as dark pool liquidities markets, MiFID II imposes information disclosure and transparency requirements for bilateral trading in these dark pools so that investors have a clearer image of who they are trading with. According to Schlaepfer, the purpose of these new rules is to reduce exposure and prevent ‘predatory trading practices’ within these deregulated markets.