The Markets in Financial Instruments Directive II (MiFID II) has been described as “one of the most ambitious and contentious reforms introduced by the EU in response to the 2008 financial crisis” and, after a 12-month delay, its implementation is now just a year away. So what do non-financial corporates actually need to know about the directive?
MiFID II will regulate the use of financial instruments (including shares, bonds and derivatives) by companies that trade them and the venues where such instruments are traded. This means that non-financial companies may not feel like they have to actively do much about MiFID II but the legislation will have a ripple effect. CTMfile has covered this in the past and here is a summary of how corporate treasurers can expect to see the effects of MiFID II.
How MiFID II could affect non-financial corporates
- The purpose of MiFID II is to create a safer environment in which privately traded derivative instruments are moved onto electronic platforms, improving transparency and curbing the size of trading positions in some commodities markets. The creation of a more transparent market from 3 January 2018 may mean companies can make adjustments to their risk management approach to using derivatives instruments for hedging purposes.
- MiFID II will ensure that EU financial markets do not lag behind US markets in terms of transparency, giving corporate treasurers more choice of which markets to access.
- In September 2015, the EC announced the creation of a capital markets union (CMU), which is designed to open up and facilitate access to alternative non-bank sources of financing for corporates. MiFID II contains measures that are integral to the CMU, which aims to facilitate access to funding for businesses.
Milestones to MiFID II
As Fidessa's Christian Voigt, a regulatory advisor, points out in his blog post on Finextra, there are several deadlines before and after the official MiFID II go-live date of 3 January 2018, which means that companies should ensure they have their own customised MiFID II roadmap. He lists the following considerations, most of which will affect financial institutions:
- 1 February 2017: trading venues must submit their waiver applications to their relevant competent authorities for equities;
- 1 June 2017: trading venues must submit their waiver applications to their relevant competent authorities for bonds and derivatives;
- 1 September 2018 : investment firms must register as a Systematic Internaliser;
- 3 January 2020: non-discriminatory access to and obligation to licence benchmarks; and
- September 2019: non-equity consolidated tape may be introduced.
Considerations for financial firms
AutoRek's Marc McCarthy urges companies to make sure they are able to comply in time for the 3 January go-live date, with the reminder that the financial authorities have made it clear they will start auditing firms shortly after that date. He also writes in Bobsguide that “over-reporting” will no longer be tolerated – meaning that firms must ensure they are carefully vetting the trade data they present to auditors. McCarthy also advises firms to ensure the data management process is both automated and run on an adequate system with bespoke software. He advises firms to: limit the number of systems used, consider outsourcing the process, use a data management system.
CTMfile take: MiFID II means a substantial shift for firms and venues providing services based on financial instruments. Non-financial corporates are advised to keep up-to-date with how their providers are preparing to comply come 3 January next year.
Like this item? Get our Weekly Update newsletter. Subscribe today