MiFID/ MiFID II/ MiFIR

Question 1

What are EU directives not?

Answer 1

Not laws or regulation - they are direction/ guidance

Question 2

What were EU directives issued under?

Answer 2

Issued under Article 58 of the European Treaty

Question 3

What is the goal of the EU directives? and why?

Answer 3

To harmonise laws across member states - because the more we harmonise the easier it is to make cross border sales

Question 4

How are the EU directives implemented?

Answer 4

o May be implemented by:

• Primary legislation (new law); or
• Delegated legislation (amending existing law

Question 5

What happens if the EU directives are not implemented by the due date

Answer 5

If it is not implemented by the due date then has a ‘VERTICAL DIRECT EFFECT’, i.e. given precedence over national law

Question 6

What are EU Regulations and what is their effect?

Answer 6

o Most direct form of EU law

o IMMEDIATELY BINDING in all EU member states

Question 7

What does MiFID allow in terms of ‘passpoorting’?

Answer 7

• Firms may trade throughout EEA with a single authorisation (‘single passport’)

Question 8

How long can it take for a firm to obtain a ‘single passport’

Answer 8

up to 6 months

Question 9

Under MiFID passporting who is the passport obtained by and what conduct of business rules apply?

Answer 9

o Obtained from HOME state regulator

o HOST state conduct of business rules apply

Question 10

When was Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) implemented?

Answer 10

January 2018

Question 11

What are the key changes from MiFID to MiFID II

Answer 11

o A regulated organised trading facility (OTF)
o Strengthening the transparency requirements
o Limiting the size of positions held in commodity derivatives
o Rules to avoid potential risks and creation of disorderly markets from increased use of technology performed electronically at very high speed
o Increased information on products and services

TOILEt 
T- transparency 
O - OTF
I - Increased info 
L - Limiting the size of positions held in commodity derivatives 
E - Electronic

Question 12

What does MIFID II distinguish between (as was also the case with MiFID)?

Answer 12

o Investment services and activities (core services – at the very heart of most financial institutions – their daily business); and
o Ancillary services (non-core ‘add-on’ services that compliment the core services)

Question 13

Why is an regulated OTF needed under MiFID II?

Answer 13

idea of this is for transparency regulated markets are very transparent everything that is traded on this can be seen by all.

E.g. brings bonds and derivatives which are brought on an OTC under a more transparent system

Question 14

Expand on how transparency requirements generally were increased under MiFID II

Answer 14

Trade reporting and transaction reporting were greatly strengthened

Question 15

What is it called when the size of positions held in commodity derivatives is limited?

Answer 15

Position limits

Question 16

Why is there emphasis in MiDIF II around increased regulation around electronic trading

Answer 16

Because of an increase in  High Frequency Trading (lots of problems can occur here because everything is run on algorithms so if anything went wrong the systems could take over and cause issues) so more regulation here.

Question 17

Under MiFID II what can be done with ‘core’ services?

Answer 17

They can be passported even on their own

Question 18

List out the ‘core’ investment services and activities

Answer 18

RED POO Mop It Up

R - Reception and transmission of orders
E - Execution of orders for clients (e.g. brokers)
D - Dealing ‘own account’ (principal)

P - Placing
O - Operating an MTF
O - Operating an OTF

Mop - Managing investments/ portfolios
It - Investment advice
Up - Underwriting

Question 19

List out the Ancillary Services

Answer 19

Shaggy Giraffes Appreciate Frozen Iced Igloos

o Safekeeping and administration of investments
o Granting credit (margin)
o Advice on capital structure and advice and services relating to M&A
o FX services
o Investment research
o Investment and ancillary services relating derivative underlying assets

Question 20

What can’t be done with Ancillary/ ‘add on’ services?

Answer 20

These cannot be passported on their own. If wanted to sell these services alone then they would need to get licensing in every jurisdiction.

Question 21

When can ancillary/ ‘add on’ services be passported

Answer 21

They have to be added along/ used in conjunction with the core services and passported.

Question 22

Under MiFID II what counts as financial instruments?

Answer 22

Trombones Don’t Make D Flat Unless Really Determined

T - Transferable securities
D - Derivative contracts relating to: Securities; currencies; interest rates or yields; emission allowances, financial indices and commodities (physical or cash settled).
M - Money-market instruments (products with a life of less than 12 months)
D - Derivative instruments for the transfer of credit risk e.g. CDS (credit default swap)
F - Financial contracts for differences –> cash settled product.
U - Units in an Collective Investment Undertaking CISs)
R - Reception and transmission of orders
D - Derivative contracts relating to:
o Climate, freight or inflation; or
o Other official economic statistics

Question 23

Under financial contracts for differences what under MiFID II isn’t a contract covered

Answer 23

Any non-cash settled product

e.g. spread bet on sports would not be covered

Question 24

When was MiFIR implemented?

Answer 24

January 2018

Question 25

What is MiFIR?

Answer 25

The related regulation to MiFID II

Question 26

What unlike MiFID II does not need to happen with MiFIR and why?

Answer 26

Unlike MiFID II, does NOT need to be implemented into national law – because it is regulation it becomes national law has a direct effect

Question 27

Vaguely what does MiFIR cover?

Answer 27

Sets out a number of reporting requirements in relation to the disclosure of trade data to the public and competent authorities

Question 28

What does MiFIR do in terms of extending MiFID’s scope?

Answer 28

Extending MiFID’s scope to cover more asset classes, so more firms caught under reporting obligations.

Question 29

Under MiFID II when talking about what is classed as a financial instrument what must derivatives contracts be relating to to count as a financial instrument

Answer 29

Derivative contracts relating to: Securities; currencies; interest rates or yields; emission allowances, financial indices and commodities (physical or cash settled).

other official economic statistics
relating to climate or commodities

Question 30

What constitutes as a Money-Market instrument

Answer 30

Money-market instruments (products with a life of less than 12 months)

Question 31

What type of product is a financial contract for differences

Answer 31

cash settled product.

Question 32

What is an example of a derivative instrument for the transfer of credit risk

Answer 32

CDS (credit default swap)