On 1st November 2007, the Markets in Financial Instruments Directive, otherwise known as MiFID, went live across Europe, completely changing the face of banking and financial markets in the region. The MiFID directive was pretty wide-ranging, mainly geared towards increasing competition in the equities markets. In effect, it paved the way for a whole raft of new trading venues to open up.
One of the key elements of MiFID was to ensure that not only would investors be getting a better deal, but that they could actually see they were getting a better deal too, through a process called “best execution”.
In the three years or so since MiFID was introduced, the European equity trading landscape has changed beyond all recognition. Some of the legislation has in fact brought about unintended consequences, not least of which has been the fragmentation of the markets and the phenomenal growth of high frequency trading.
The European legislators and regulators are now planning on introducing MiFID II, which will be an even more wide-reaching body of legislature, covering not just the equities markets but all asset classes, including fixed income, foreign exchange and commodities.
The first step towards the introduction of MiFID II has been a consultation process. An 83-page document outlining the proposed changes was released to the market on 8th December 2010 and all responses had to be submitted to the European Commission by 2nd February.
According to a number of reports, many market participants seem to feel that this consultation period of less than two months has been too short to formulate their responses to what is such a wide-reaching review. However, the dates are fixed and the responses are now in.
The next step is for the regulators to read all these responses and decide what (if any) changes need to be made to the original proposals, before any new legislation is actually introduced later in 2011.