What is the 'Markets In Financial Instruments Directive - MiFID'

The Markets in Financial Instruments Directive (MiFID) is a European Union law which standardizes regulation for investment services across all member states of the European Economic Area. 

BREAKING DOWN 'Markets In Financial Instruments Directive - MiFID'

MiFID increases the transparency of financial markets across the European Union (EU) and standardizes the regulatory disclosures required for particular markets. It implemented new measures, such as pre- and post-trade transparency requirements, and set out the conduct standards for financial firms. The directive has been in force across the European Union since 2008. MiFID has a defined scope that primarily focuses on over the counter (OTC) transactions. The stated aim of the MiFID is for all EU members to share a common, robust regulatory framework that protects investors.

MiFID came into effect prior to the 2008 financial crisis, but changes were made in light of the crisis. One of the issues in the original drafts is that the regulatory approach to third country firms was left up to each member state, and that led to some firms outside the EU having a competitive advantage, in that they were subject to less regulatory oversight than firms inside the EU. This issue is being addressed through MiFID II, which will harmonize the rules for all firms with EU clients. The Markets in Financial Instruments Regulation (MiFIR) works in conjunction with MiFID and MiFID II to extend the codes of conduct beyond shares to other types of assets, including contract-based assets and structured finance products.

EU Regulatory Harmonization

Drafted from 2004-2006 and implemented in 2007, the MiFID represented the central outcome of the European Union's Financial Services Action Plan, initially outlined in 1999 and intended to create a single regulated market for all financial services within the European Union. MiFID replaced an older regulation called the Investment Services Directive, but retained many of its core features, such as the MiFID "passport" which allows firms providing financial services in a 'home' state that is a member of the European Union to provide those same services to other member states, subject to MiFID regulations. Great Britain would relinquish the advantages afforded by this passport if it excited the European Economic Area as a part of Brexit negotiations. 

MiFID is just one part of the regulatory changes sweeping the EU and impacting the compliance departments of all financial firms – insurers, mutual fund providers, banks, etc. – operating there. Taken together with other regulatory initiatives like the General Data Protection Regulation (GDPR) and Markets in Financial Instruments Regulation (MiFIR), the EU is following through on its vision of a transparent market with clear rights and protections for EU citizens. Many of the rules are tweaks upon existing regulations, such as the requirements for disclosure where a conflict of interest arises. However, several best practices, like the appointment of a single officer responsible for protecting client interests from within the firm, are now explicit requirements for firms wanting to access the EU market.


MiFID was reviewed by arms of the European Union from 2010 to 2014, and a revised regulation called MiFID II passed the European Parliament in 2014. The new MiFID regulations require much more transparency from banks and other financial institutions, and severely limit trading in dark pools and other private, broker-to-broker exchanges. To give financial institutions time to adjust to the extensive new regulations, implementation of MiFID II was delayed until January 2018. 

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