MiFID II
Quick Definition
European Union regulation that enhances transparency, investor protection, and market structure rules across financial markets.
Key Takeaways
- Comprehensive EU regulation governing financial markets since January 2018
- Requires research unbundling — separating research costs from trading commissions
- Increases transparency across equity, bond, and derivatives markets
- Strengthens investor protection and product governance rules
- Regulates algorithmic and high-frequency trading practices
What Is MiFID II?
The Markets in Financial Instruments Directive II (MiFID II) is a comprehensive European Union regulatory framework that took effect in January 2018, replacing the original MiFID from 2007. MiFID II significantly expanded the scope of financial market regulation by increasing transparency requirements for equity and non-equity markets (including bonds, derivatives, and structured products), introducing stricter rules on research unbundling (requiring asset managers to pay separately for research rather than bundling it with trading commissions), enhancing best execution requirements, strengthening investor protection through product governance rules, and regulating algorithmic and high-frequency trading. The regulation applies to investment firms, trading venues, and data reporting services operating within the EU and has had global ripple effects on market practices.
MiFID II Example
- 1Under MiFID II, European asset managers must pay separately for sell-side research instead of bundling the cost into trading commissions, increasing transparency for investors.
- 2A London-based trading firm had to upgrade its systems to comply with MiFID II's requirement to report all transactions within one day of execution.
Related Terms
SEC (Securities and Exchange Commission)
The primary U.S. federal agency responsible for regulating securities markets, protecting investors, and enforcing federal securities laws.
FINRA
A self-regulatory organization that oversees broker-dealers and their registered representatives in the United States.
Dodd-Frank Act
Comprehensive financial reform legislation enacted in 2010 to reduce systemic risk and protect consumers after the 2008 financial crisis.
Compliance Officer
A professional responsible for ensuring a financial institution adheres to all applicable laws, regulations, and internal policies.
FDIC
Independent federal agency that insures bank deposits up to $250,000 per depositor, per institution, and supervises financial institutions for safety and soundness.
Insider Trading
The illegal practice of trading securities based on material, non-public information obtained through a position of trust or confidence.
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