The Markets in Financial Instruments Directive (MiFID) is a legislative framework that was in effect from 1 November 2007 to 2 January 2018. It was replaced by MiFID II, which came into force on 3 January 2018.
MiFID was originally put in place to regulate the provision of investment services by financial institutions within the EU, as well as to increase the competitiveness of financial markets. However, it had several shortcomings, which were largely exposed after the financial crisis. MiFID II came into force to build on the original directive and strengthen protection for investors, improving the efficiency, transparency and safety of European markets.
When MiFID was introduced in 2007, it required firms to:
- Gain more information regarding their clients’ appropriateness for trading specific products
- Handle orders in clients’ best interests
- Provide greater transparency regarding market conditions both before and after a trade (eg volumes, best bid and ask prices)
- Make sure best execution was achieved on all client orders
MiFID II superseded the original MiFID, adding additional protection for investors. MiFID II ensures that:
- Regulated platforms are used for trading
- Algorithms for high-frequency trading abide by rules set out in the directive
- Transparency is improved further with more oversight of financial markets
- Virtually all assets and professions in the EU financial services industry are covered