The document summarizes key aspects of the upcoming MiFID II and MiFIR regulations in the EU. It discusses the major changes the regulations will bring, including more pre-trade and post-trade transparency, restrictions on dark trading, controls on high frequency trading, and an expanded regulatory regime with higher fines. It also outlines the expected timetable for implementation and some of the structural changes firms may need to make, such as increased electronic trading, outsourcing, and changes to collateral management. Competent authorities will have broad new supervisory and sanctioning powers under the new regulations.

1. FIXNETIXThe ultimate trading advantage

2. Managing Director
Jefferson Young
Part of the InterQuest Group
MiFID & MiFIR Update
Matthew Argent

3. Editor FT trading Room
Financial Times
MiFID & MiFIR Update
Philip Stafford

4. Chief Administration Officer
Fixnetix Limited
bob.fuller@fixnetix.com
Major changes in EU
trading regulation & how it
might affect you
Bob Fuller

5. Where is the London market now?
Five Stages of Grief
• Denial – This can’t be happening to me.
• Anger – Why me?
• Bargaining – Attempting to make deals.
• Depression – Feelings of hopelessness.
• Acceptance – Getting on with life.

6. EU Regulations, where are we?
• EMIR – Passed
• OTC Derivatives – Passed
• MAD 2 Directive – Passed
• MAD 2 Regulation – Passed
• MiFID 2 Directive – Will be passed 16th April 2014
• MiFIR 2 Regulation – Will be passed 16th April 2014
Latest/almost final versions of MiFID 2 and MiFIR dated the 17th February 2014

7. Under EU law
Directives
• must be transposed into each Member State’s
national law by secondary legislation
• ample scope for incorrect/incomplete porting
Regulations
• ‘binding in their entirety & directly applicable in all
Member States’
What is the difference between a
Directive and a Regulation?

8. Where are we in the MiFID II process?
For the US to recognise the EU withing
the Dodd Frank regime MiFID 2 and
MiFIR 2 MUST be passed before the EU
parliament retires in April
(for the May Elections)

9. • MiFID 1 is NOT repealed but a lot of the definitions
are changed i.e. It’s not just about Equities, but
about everything except FX.
• No mixing of the prop book with customer orders
unless you are an Systematic Internaliser. The end
of Broker Crossing Networks as we know them.
• Much more transparency, with increased restrictions
on trading ‘in the Dark’ ( 8% in market total for any
instrument and 4% for any market venue – then 6
months of NO dark activity!)
Main Market Structure items 1

10. • The Equity model is to be used as the base model
for ALL instrument types.
• This will inevitably move ALL instrument types to
electronic trading (the demise of voice trading)
which will require more connectivity and less
traders.
• Greater emphasis on Best Execution so more
historic proof of what you did and why.
• Mandatory Clearing of new instruments.
Main Market Structure Items 2

11. Main Market Structure Items 3
• Controls and constraints on High Frequency
Trading. Including prior approval by a regulator!
• Both firms and individuals will be subject to fines
and/or other sanctions given any ‘ignoring of the
rules’.
• Non Equity Clearing open to competition over
time.

12. MiFID 196 pages
MiFID 2 464 pages
MiFIR 60 pages
MiFIR 2 243 pages
Original total 256 pages
New total 707 pages
Overall very nearly 3 times the size.
Note how much bigger MiFIR is over 4 times the size
Some Statistics to ponder

13. MiFID II’s much more reliance on Regulation rather
than Directive plus the new sanction regime
characterises the significantly altered risk/reward
balance.
A big change from the much lighter touch framework
that has been in place since competition in equities
trading was first opened up five years ago by MiFID
What is the main structural difference
between MiFID and MiFID 2?

14. Financial Transaction Tax
Still being proposed by 11 EU countries with
Equities being set at 0.1% and Derivatives at
0.01%. Due soon?
• Extra Territoriality
• Definition of when it is due
• Competitiveness of EU institutions
May include FX (see recent EU legal challenge!)
What other EU rules may affect Trading?

15. German HFT rules
Now in place
• Need to have a capitalised presence in
Germany to Algo/HFT trade
• May move flow to London
Local EU laws

16. What Structural Changes may this cause?
• Reduction/removal of margin income on customer flow
• Dramatic reduction in voice trading, more electronic
trading – smaller trading rooms?
• Potential reduction in liquidity for some instruments
• Increased IT costs / reduction in revenues
This is very likely to lead to:
• More specialisation within an entity, only concentrate on
what you are good at.
• Increased IT spend and increased IT risk.
• More outsourcing or use of utilities

17. Any Other Structural Changes?
All of these changes are moving formally Back Office End of Day functions
to be more Front Office Real-Time ones.
For example there will be a need to move collateral in real-time, due to:
• More transactions being cleared requiring more initial margin.
• As the CCP’s will be more regulated they will not be able to offer so
much intra day credit so to carry out the next trade they will need to
have control of the collateral.
• This will lead to:
• The need to settle transactions quicker to enable the proceeds to be
used as collateral.
• The lack of available collateral putting a stop to trading activity!
All of which will require major changes to systems and communications
infrastructure for these current Back Office functions.

18. Where is the market?
Five Stages of Grief
• Denial – This can’t be happening to me.
• Anger – Why me?
• Bargaining – Attempting to make deals.
• Depression – Feelings of hopelessness.
• Acceptance – Getting on with life.

19. Immediate Preparations for you
• Speak with your compliance departments
• Read all the regulations
• Attend conferences and events on regulations
• Discuss with peer group and industry associations
Most of all, these regulations will need significant Senior
Management involvement as they will affect what you
trade and how you trade it.

20. 20 MARCH 2014
Richard Kemp
MiFID II Sanctions
Regime

21.  Title VI, Chapter 1 – Articles 69 to 82
 Designation, Powers and Redress Procedures of Competent
Authorities
– Article 71 – Supervisory Powers
– Article 75 – Sanctions for Infringements
– Article 75a – Publication of Sanctions and Measures
– Article 76 - Exercise of Supervisory and Sanctioning Powers
– Article 79 – Right of Appeal
MiFID II’s Sanctions Regime

22.  Recitals 95 and 96
“In order to ensure compliance by investment firms, [etc …] and to
ensure that they are subject to similar treatment across the European
Union, Member States should be required to provide for ▌sanctions
and measures which are effective, proportionate and
dissuasive.”
 “In particular, competent authorities should be empowered to impose
pecuniary sanctions which are sufficiently high to
offset the benefits that can be expected and to be dissuasive
even for larger institutions and their managers.”
MiFID II’s Sanctions Regime

23. • broad powers for regulators
• consolidates enhancements of regulators’ powers from earlier drafts with:
• extended information access and investigation powers (71(2)(a) to (d))
• power to require the freezing and/or sequestration of assets (71(2)(da))
• specific and intrusive powers to ban, permanently or temporarily, for
example:
• practices the regulator considers unlawful (71(2)(ia))
• trading in a financial instrument (71(2)(ic))
• the entering into of a derivative, including by position limits (71(2)(if))
• sales and marketing of financial instruments or structured deposits
(71(2)(2nd ih))
• an individual from sitting on the management board of an IF or MO
(71(2)(ij))
MiFID II’s Sanctions Regime –
Article 71: Supervisory Powers

24. broad powers for regulators – without affecting criminal sanctions, under national law -
including:
• temporary/permanent ban on an individual responsible for IF management function
(72(2a)(da))
• the greater of (i)
• for companies, ‘maximum administrative fines of at least €5m or up to 10% of
relevant annual turnover’ (72(2a)(e)) or
• for individuals, ‘maximum administrative pecuniary sanctions of at least €5m’
(72(2a)(f))
and (ii)
• ‘maximum administrative pecuniary sanctions of at least 2x the amount of the benefit
derived’ … ‘even if it exceeds the maximum in (i)
• regulators can be empowered to go higher or impose additional types of sanction
(72(2nd 2a)
MiFID II’s Sanctions Regime –
Article 72: Sanctions for Infringements

25. British Bankers’ Association
Markets in Financial Services Regulation
(MiFIR) & Directive (MiFID)
Vivienne Bannigan
Policy Director, Capital Markets

26. Why MiFID Review
 Needs updating: requirements to adapt to more complex
markets and increased diversity of instruments and methods of
trading
 Structural reform in aftermath of financial crisis
 G20 to tackle less regulated and more opaque areas of financial
system
 Response to technological development
 Further strengthen investor protection
 Contribute to establishing a single rulebook for EU financial
markets: help level the playing field between Member States.

27. International Regulatory Change
MiFIR/
MiFID
UCITS
AIFMD
EMIR
Securities Law
Directive
MAR/ MAD
Investor
Compensation
Scheme
Directive
Retail
Distribution
Review
PRIPS
Directive

28. The Framework
Organisations
•Investment firms
•Credit institutions
•Portfolio managers
•Broker-dealers
•Stock brokers
•Corporate finance companies
•Commodity firms
•Market operators
•Central counterparties
•Data Service Providers
Activities
•Reception & transmission of orders (in
relation to finance instruments)
•Execution of orders on behalf of the
client
•Dealing on own account
•Portfolio management
•Investment advice
•Underwriting of financial instruments
&/or placing of financial instruments on a
firm commitment basis
•Placing of financial instruments without a
firm commitment basis
•Operation of a Multilateral Trading
Facility
•Safekeeping and administration of
financial instruments for the account of
clients, including custodianship and
released services such as cash/
collateral management
Financial instruments
•Transferable securities
•Money market instruments
•Undertakings for Collective Investment
in Transferable Securities (UCITS) funds
•Emission allowances
•Financial derivatives
•Financial contracts for differences
(CFDs)
•Commodity derivatives which may be
settled in cash or physically; are not for
commercial purposes and have the
characteristics of other derivatives;
relate to climatic variables, freight rates,
or inflation rates or other official
economic statistics; and any other
derivatives contracts not mentioned in
Section C of Annex 1

29. Transparency & Reporting
ESMA
Competent
Authorities
Trading Venues
MTFs, OTFs, RM,
SIs
Investors
ECP, Professional, Retail
Approved
Reporting
Mechanism
ARM
Investment
Firms

30. British Bankers’ Association
February w/c 3rd Technical Trilogue end
w/c 10th Possible for political group to approve
March Further to Commission Legal Services possible that English text available
April • EP to first reading plenary vote is anticipated the week of 15 April
• Adoption by the Council will most likely take place as an A point (and therefore can be in any Council
agenda, following translation into all EU language and jurists linguists)
• Formal approval triggers the Level 2 process where the European Commission mandates ESMA to start
work.
May • (Last Plenary session on the 22nd - 25th May before the E.Parl elections, should there be delays)
• L1 text due to be published in the EU's Official Journal, following M/States have 24mths to transpose the
directive. This is delayed from the original deadline of Q1/Q2 2013.
• The BoS meeting is 19-20 May (as the subsequent meeting is not until 9 July, the late delivery of the
mandates would substantially delay the draft CP and DP, unless an additional emergency BoS is called.)
June Expected publication of Discussion paper and Consultation I paper – there may be a slight delay between the
two (3 month consultation period would suggest a mid to early September deadline)
Q4 ESMA to deliver by December first set of technical advice to the European Commission
Expected publication of Consultation paper II
2016 Entry into force June 2016
2017 Full Application
Timetable

31. Thank You 
British Bankers’ Association

32. Panel Q&A
Moderator
Phil Stafford
Financial Times
Vivienne Bannigan – Policy Director, Capital Markets, BBA
Bob Fuller - CAO, Fixnetix
Richard Kemp - Senior Partner, Kemp Little
Elizabeth Callaghan – Capital Markets Regulatory Specialist