2. MIFID II has deep reaching implications for the financial industry as a whole, especially as it covers the
lifecycle of business operations.Hence it requires banks to rethinktheir strategy, redefine product offering,
redesign trading platforms, refine operational processes and trading workflow, and requires major
investment in data and technology.
Market structure: Mifid II places equity trading obligations on RM, MTF and SI (no off-market trading);
mandatory trading obligation for OTC derivatives; introduces organized trading facility (OTF) for non-equity
instruments; limits trading on dark pools for equities and equity-like products; and open access to trading
venues, CCPs and benchmarks.
Market Transparency: Mifid II increases regulatoryand client reportingrequirements for all asset classes on RM,
MTF, OTF and SI; all RMs, MTF and OTFs to publish bid/ask and depth of market (per product); public firm price
quotingrequirements for SIs for liquid instruments;requires European Consolidated Tape (ECT) approaches; and
synchronized business clocks for trading venues and members.
Investor Protection: Revised suitability and appropriateness regime especially for “complex” products with
embedded derivatives (including UCITS); prohibits inducements to independent advisers and discretionary
managers and more stringent disclosure regime for payments paid and received; enhanced conduct rules when
designing new products and tightened execution-only regime.
External Reporting: Tradingbans and position limitsfor commodityderivatives; external circuit breakers for HFT
trading (breaker at venue level); testing of algorithmic by participants; additional reporting requirements to
regulators (trade and transaction reports,algorithmicreporting, expanded asset class and data scope); national
competent authorities to apply sanctions when in breach; regulatory oversight of product, including ban or
limitations on marketing to retail investors; third-country access through national regimes until effective
equivalence test by European Commission allowing pass- porting.
Internal Controls: Prescribed governingboard and committee composition,fitness and propriety,and time
commitment;implementingsystems capable ofrecordkeepingfor a minimum offive years; increased scope and
role of compliance (semi-independence);and “Tone from the top”.
3. As such MiFID II will require significant changes in business and operating models, systems, data, people and
processes. As a result, a fundamental transformation will emerge. The biggest impact will be experienced by
banks, broker dealers and trading venues. Additionally, investment managers, insurance firms, independent
financial advisors (IFAs), custodian banks and other asset servicing entities will also need to undertake a
substantial effort. The level of impact of MiFID II differs in most areas for investment banks, asset managers,
insurance, custodial, retail banking and commercial banking. The most significant impact and spend is on the
firm infrastructure. The fundamental change is:
With respect to:
Market Structure in additioncovers organised tradingfacilities and cross networks;
treatment ofsingle and multiple dealer platform, darkpools.
Market Transparencynowextended to other asset classes and regulatoryrequirements
across asset classes,revised conditions to waivers and European consolidatedrecords.
Investor Protection extended to other asset classes
Internal Controls and External Reportingto cover high frequencytrading,third country
access, and product position limits.
Mifid II needs to be aligned to other regulations notably EMIR, CRD IV, AIFMD, Solvency II, FRTB, Capital
Adequacy Pillar I & II, packaged retail and insurance investment products (PRIIP), central securities depository
regulation,short sellingregulation,market abuse regulation,shadowbanking,etc.Primarily across legal entities,
trade execution,pricing,trade reporting,clearing, settlements, client advisory, business conduct, collateral and
margining, valuation, product control and accounting, capital adequacy, regulatory reporting, etc.
