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User:16912 Rhiannon/MiFID intro + Background

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The Markets in Financial Instruments Directive 2004/39/EC (known as "MiFID"[1]) as subsequently amended[2] is a European Union law that provides harmonised regulation for investment services across the 31 member states of the European Economic Area (the 28 EU member states plus Iceland, Norway and Liechtenstein). MiFID was approved in 2004[3] and implemented by the European Commission in November 2007.[4]

The directive's main objectives are to increase competition and consumer protection in investment services. As of the effective date, 1 November 2007, it replaced the Investment Services Directive (ISD).[5] The original MIFID regime was intended to alter share-trading within the European Union (EU) and served as a set of guidelines for the use of shares and bonds, which the regulations refer to as financial instruments. The regulations are designed to minimize systemic risk and strengthen existing investor protections.[4] MiFID is the cornerstone of the European Commission's Financial Services Action Plan, whose 42 measures aim to change how EU financial service markets operate.[6]

MiFID retained the principles of the EU "passport" introduced by the ISD but introduced the concept of "maximum harmonization" which places more emphasis on home state supervision.[7] This is a change from the prior EU financial service legislation which featured a "minimum harmonization and mutual recognition" concept. "Maximum harmonisation" does not permit states to be "super equivalent" or to "gold-plate" EU requirements detrimental to a "level playing field". Another change was the abolition of the "concentration rule" in which member states could require investment firms to route client orders through regulated markets.[7][8][9]

In April 2014, the European Parliament approved both MiFID II, an updated version of the original MiFID law, and MiFID II's accompanying regulation, MiFIR.[10] The directive and regulation include fewer exemptions and expand the scope of the original MiFID to cover a larger group of companies and financial products.[11][12] Both MiFID II and MiFIR are set to take effect at the end of 2016.[10]

Background and history

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MiFID was intended to replace the Investment Services Directive, which was adopted in 1993.[13] The law creates a single market for investment services and activities, which improves the competitiveness in EU markets.[13] While the original law did succeed in lowering prices and expanding choices for investors, weaknesses in MiFID's structure became apparent during the financial crisis in 2008.[4][14]

MiFID was also intended to make changes to share-trading, and it set guidelines for the use of related financial instruments.[13][4] The law was introduced in order to reduce systemic risk and strengthen existing investor protections.[4][15]

During the approval process for MiFID, a proposal from the European Commission was read by European Parliament in March 2004.[16][17] In April 2006, the Commission published consultation responses it received in 2005. In June 2006, the Commission published a new draft of MiFID.[18] The EC and Parliament discussed any suggested amendments to approve Level One texts.[19] A second reading of the legislature by both Parliament and the Commission followed.[17]

MiFID was introduced under the Lamfalussy procedure, which was designed to accelerate the adoption of legislation based on a four-level approach recommended by the Committee of Wise Men. The Committee was chaired by Baron Alexandre Lamfalussy. There are three other "Lamfalussy Directives," including the Prospectus Directive, the Market Abuse Directive and the Transparency Directive.[20]

Level 1

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The MiFID Level 1 Directive 2004/39/EC, implemented through the standard co-decision procedure of the Council of the European Union, and the European Parliament, sets out a detailed framework for the legislation.[21][22] It also amends Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC and repeals Council Directive 93/22/EEC, Investment Services Directive (ISD) originally adopted in 1993.[23]

Level 2

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Twenty articles of this directive specified technical implementation measures (Level 2). These measures were adopted by the European Commission, based on technical advice from the Committee of European Securities Regulators and negotiations in the European Securities Committee with oversight by the European Parliament. Implementation measures in the form of a Commission Directive and Commission Regulation, were officially published on 2 September 2006.[21][22]

References

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  1. ^ "Directive 2004/39/EC". Official Journal of the European Union. 2004. Retrieved 2008-03-20.
  2. ^ "Directive 2008/10/EC". Official Journal of the European Union. 2008. Retrieved 2008-03-20.
  3. ^ Stephen Weatherill (2007). Better Regulation. Bloomsbury Publishing. p. 319. Retrieved 16 April 2015.
  4. ^ a b c d e "MiFID2: A Bigger Bang". The Economist. 26 April 2014. Retrieved 27 January 2015.
  5. ^ Directive 93/22/EEC
  6. ^ European Commission (2009). "Financial Services Action Plan". Banking and Finance. Retrieved 27 January 2015.
  7. ^ a b "Markets in Financial Instruments Directive (MiFID): Frequently Asked Questions" (Press release). European Commission. 29 October 2007. Retrieved 27 January 2015.
  8. ^ This option was not taken up by all EU states.
  9. ^ See CESR MiFID databases for a list of regulated markets, multilateral trading facilities, systematic internalisers and shares.
  10. ^ a b Elliott Holley (16 April 2014). "European Parliament passes "sensible" MiFID II". Banking Technology. Retrieved 16 April 2015.
  11. ^ Hannah Smith (19 December 2014). "ESMA unveils final guidance on MiFID II rules". Investment Week. Retrieved 16 January 2015.
  12. ^ "MiFID II – what is changing?". Financial Conduct Authority. 9 December 2014. Retrieved 27 January 2015.
  13. ^ a b c "Legislation in force: MiFID I". European Commission. 18 February 2015. Retrieved 12 June 2015.
  14. ^ "Proposal for a Directive of the European Parliament and of the Council on markets in financial instruments repealing Directive 2004/39/EC of the European Parliament and of the Council" (PDF). European Commission. 20 October 2011. Retrieved 19 August 2015. {{cite web}}: line feed character in |title= at position 154 (help)
  15. ^ Neil Hume (22 March 2015). "Trafigura says European trading rules have 'little justification'". Financial Times. Retrieved 12 June 2015.
  16. ^ Walburga Hemetsberger (2008). European Banking and Financial Services Law. European Association of Public Banks. p. 67. Retrieved 19 August 2015.
  17. ^ a b "Codecision Flowchart". The European Commission. 21 August 2012. Retrieved 13 April 2015.
  18. ^ "MiFID - Archives". European Commission. 18 February 2015. Retrieved 16 April 2015.
  19. ^ "Consultation Paper on MiFID II/MiFIR". ESMA. Retrieved 16 April 2015.
  20. ^ Chris Skinner (2007). The Future of Investing in Europe's Markets after MiFID. John Wiley & Sons. Retrieved 27 January 2015.
  21. ^ a b "COMMISSION DIRECTIVE 2006/73/EC" (PDF). Official Journal of the European Union. 2006. Retrieved 2008-01-22.
  22. ^ a b "COMMISSION REGULATION (EC) No 1287/2006" (PDF). Official Journal of the European Union. 2006. Retrieved 2008-01-22.
  23. ^ "MiFID Level 1 Directive 2004/39/EC". European Commission. 21 April 2004. Retrieved 16 April 2015.
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