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Concept.png Markets in Financial Instruments Directive (MiFID) Rdf-icon.png

The Markets in Financial Instruments Directive ("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 (Directive 2004/39/EC), effective from 31 January 2007 to 2 January 2018, is a cornerstone of the EU's regulation of financial markets and governed:

provision of investment services in financial instruments by banks and investment firms; and,
operation of traditional stock exchanges and alternative trading venues.

While MiFID created competition between these services and brought more choice and lower prices for investors, shortcomings were exposed in the wake of the Global Financial Crisis.

Revising MiFID

In June 2014, the European Commission adopted new rules revising the MiFID framework. These consist of a directive (MiFID 2) and a regulation (MiFIR).[3]

MiFID 2 aims to reinforce the rules on securities markets by:

ensuring that organised trading takes place on regulated platforms;
introducing rules on algorithmic and high frequency trading;
improving the transparency and oversight of financial markets – including derivatives markets - and addressing some shortcomings in commodity derivatives markets; and,
enhancing investor protection and improving conduct of business rules as well as conditions for competition in the trading and clearing of financial instruments.

The revised MiFID rules also strengthen the protection of investors by introducing requirements on the organisation and conduct of actors in these markets.

MiFIR sets out requirements on:

disclosure of data on trading activity to the public;
disclosure of transaction data to regulators and supervisors;
mandatory trading of derivatives on organised venues;
removal of barriers between trading venues and providers of clearing services to ensure more competition; and,
specific supervisory actions regarding financial instruments and positions in derivatives.

MiFID II and MiFIR became applicable as from 3 January 2018.[4]

Single Market for investment services

The EU established a comprehensive set of rules on investment services and activities with the aim to promote financial markets that are:

  • fair
  • transparent
  • efficient
  • integrated

The Markets in Financial Instruments Directive was the first set of rules adopted by the EU, and helped to increase the competitiveness of financial markets by creating a single market for investment services and activities. MiFID also ensured a high degree of harmonised protection for investors in financial instruments, such as shares, bonds or derivatives.

However, after the 2008 financial crisis it became clear that a more robust regulatory framework was needed to:

further strengthen investor protection; and,
address the development of new trading platforms and activities.

City of London becomes a "free port"

According to Simon Jenkins in The Guardian "The City may thrive despite Brexit, but the rest of us won’t" (With a ‘free port’ deal negotiated behind closed doors, the financial sector will be fine. Meanwhile, others face ruin.):

On 18 February 2019, the Bank of England and a group of City interests reached an apparently boring deal in Paris with the European Security and Markets Authority. It follows a similar deal with the European Commission last December. Both state, in effect, that, as far as the City is concerned, if there is a no-deal Brexit, Brexit did not happen.

Up to £41tn in financial guarantees, insurances, hedges and other derivatives, all within the EU’s regulatory regime, is said to be at risk in the City’s clearing houses. For everyone involved, this is a grownup business, not to be left to the mercies of the likes of Boris Johnson and Jacob Rees-Mogg. The regulators have duly issued licences to the clearing houses, allowing Europe’s banks to disregard EU rules and continue trading on London’s derivatives platforms. Financially speaking, London is to become a “free port”. Sighs of relief all round.

The City deal is, of course, a special case. It is in the EU’s interest as much as in Britain’s, and not reaching it would have been mildly catastrophic:

“The important thing is we have certainty,” David Bailey of the Bank of England told the Financial Times. “We have time to reflect on what the future arrangements will look like.”

Or as Steve Grob of ION Markets – its motto: We need to disrupt the status quo – declared:

“You can’t start moving trillions of dollars of business overnight.” The deal was “welcome common sense and practicality on what was a trillion-dollar game of chicken”.[5]

UK/US derivatives deal

On 25 February 2019, in a joint announcement heralded as a sign of the special relationship between the UK and the US, the two countries said they would take every step to ensure the continued trading of derivatives across the Atlantic under every Brexit eventuality.

Derivatives are financial contracts widely used by companies to manage risks, ranging from hedging against changes in central bank interest rates to fluctuations in commodity prices. Brexit threatens to unpick trading in the UK, even with the US, as City banks currently operate under EU rules while Britain is a member of the bloc.

Under the steps announced by the Bank of England, the Financial Conduct Authority and the US Commodity Futures Trading Commission, firms working in the US and the UK will continue to meet the requirements required to operate in both countries, even if Britain leaves the EU without a deal.

London and New York sit at the centre of the world’s multitrillion-pound derivatives market, with the US and the UK controlling 80% of the $594tn (£454tn) a year business – worth more than five times world GDP.

About a third of the £230tn of derivatives contracts traded in the UK every year come from US companies, more than any other jurisdiction.

The development comes as Brussels prepares rules that would force clearing houses – financial institutions key to the trading of derivatives – outside the EU to come under the supervision of its regulators.

Designed as a response to Brexit – as the vast bulk of the EU derivatives trade is handled in London, outside of its control from as early as 29 March – the rules have been seen as a land grab for trading to move to EU cities such as Paris or Frankfurt. The EU’s plan has run into opposition from the US, which views the steps as overreaching its remit.

The new agreement between the US and the UK could help strengthen the City’s position as a leading global financial centre.

Although Brussels still plans tougher rules for the future, it also agreed this month to allow UK firms to continue trading EU derivatives in the event of no-deal Brexit, taking a major risk to financial stability off the table.[6]


Related Document

TitleTypePublication dateAuthor(s)Description
Document:The Real Reason Theresa May’s Brexit Has FailedArticle2 March 2019TJ ColesSo, the choice faced by ordinary British people is between a neoliberal EU supported by millionaires like Kenneth Clarke or an ultra-neoliberal Brexit supported by multimillionaires like Jacob Rees-Mogg. Meanwhile, ordinary working-class people pay the price for these elite games, as usual.


  1. "Directive 2004/39/EC". Official Journal of the European Union. 2004. Retrieved 20 March 2008.Page Module:Citation/CS1/styles.css must have content model "Sanitized CSS" for TemplateStyles (current model is "plain text").
  2. "Directive 2008/10/EC". Official Journal of the European Union. 2008. Retrieved 20 March 2008.Page Module:Citation/CS1/styles.css must have content model "Sanitized CSS" for TemplateStyles (current model is "plain text").
  3. "Markets in Financial Instruments (MiFIR) - Regulation (EU) No 600/2014"
  4. "Markets in financial instruments directive - MiFID"
  5. "The City may thrive despite Brexit, but the rest of us won’t"
  6. "UK and US agree post-Brexit derivatives trading deal - Multitrillion-pound business will continue even if Britain leaves EU without a deal"
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