The MiFIR regulation is born from the MiFID directive and regulates and supervises compliance with the MiFID II regulation, ensuring transparency in negotiations and obligations by investment service providers.
The application of MiFIR is at European level and impacts on its financial markets with the aim of correcting the weaknesses suffered during the 2008 financial crisis and improving the security, transparency and functioning of financial markets.
Its acronym stands for Markets in Financial Instruments Regulation.
Origin of MiFIR
This regulation, as well as the MiFID directive, arose to reinforce transparency and improve the European financial system, establishing exhaustive rules for a wide variety of financial instruments that harmonize its financial regulation.
Both constitute the single legal framework that regulates the requirements that investment services firms, regulated markets and data supply service providers must meet. The purpose is to avoid regulatory arbitrations and offer greater legal certainty and less regulatory complexity.
This European regulation is directly applicable. In other words, it does not have to go through a process to be adapted to the national regulation of each of the member countries of the Union.
On the other hand, those companies that engage in investment activities must comply with it. Whether they are companies belonging to countries within the Union or third parties that carry out these activities with companies from a Member State. Among them, investment services companies, credit institutions, exchanges, financial and non-financial counterparties, etc.
The competent authorities will monitor the activities of investment services firms to ensure that they act honestly, impartially and professionally, promoting market integrity.
Rules of the MiFIR regulation
Among other aspects, the regulation revolves around financial instruments. Basically, it states:
- Standards that companies that carry out or lend financial activities must comply with regarding the negotiation of financial instruments.
- Market access rules for companies located in third countries.
- Powers of the competent authorities when intervening in the market. These are ESMA (European Securities and Markets Authority, or ESMA) and ABE (European Banking Authority, or EBA).
For example, it seeks to ensure that the trading of financial instruments is carried out whenever possible in organized centers and that these are properly regulated. In other words, both trading operations on their own account and those carried out to execute client orders must be carried out on a regulated market, an SMN (multilateral trading system) or an equivalent trading venue in a third country, not a member of the Union. .
However, the rule provides exceptions to which companies can avail themselves. Among others, when the operations are punctual and infrequent.
It also includes transparency requirements during pre-trade and post-trade in relation to access to information on trading opportunities and prices by market participants. Although the over-the-counter operations carried out in OTC markets are not obliged to meet the pre-trade requirements, in the case of being recurring operations for a client. This will apply to bonds and obligations, securitisations, emission rights and derivatives, seeking to introduce a certain degree of transparency that facilitates the valuation of the previous products and the efficiency in the formation of prices.
Another aspect is the availability of an explicit mechanism, by the competent authorities. It will allow them to prohibit or restrict the marketing, distribution and sale of any instrument or structured deposit that involves considerable concern in relation to investor protection, the functioning of the market and the integrity of the markets and their stability.For example, in the case of markets for agricultural raw materials, the purpose of which is to ensure an adequate supply of food for the population.
Lastly, and among others, the obligation to communicate to the competent authorities the data of operations with financial instruments so that they can detect and investigate possible cases of market abuse. For example, identifying the person who made the investment decision, as well as the person responsible for its execution.
They must also maintain the record of all their orders and operations with financial instruments, either on their own account or on behalf of a client, keeping them for 5 years, at the disposal of the competent authority. You must collect the identification code of the member or participant who transmitted the order, the identification code of the order, the date and time the order was transmitted, the characteristics of the order, including the type of order, if applicable. the limit price, the period of validity and any specific instructions of the order, among others.
Putting MiFIR into operation
All this is included in the EU Regulation 600/2014.
Since 2014, the year of publication, all banks, markets, exchanges and investment firms have had to carry out great efforts aimed at adapting all their internal systems and procedures to this new regulation, aided by financial instruments consultants and law firms. .