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Glossary

Markets in Financial Instruments Directive (MiFID)

Markets in Financial Instruments Directive (MiFID) is the framework of European Union (EU) legislation for investment intermediaries that provide services to clients around shares, bonds, units in collective investment schemes and derivatives (collectively known as ‘financial instruments’)

MiFID was applied in the UK from November 2007 and was revised by MiFID II, which took effect in January 2018, to improve the functioning of financial markets because of the financial crisis and to strengthen investor protection.

MiFID II extended the MiFID requirements in several areas including:

  • new market structure requirements
  • new and extended requirements in relation to transparency
  • new rules on research and inducements
  • new product governance requirements for manufacturers and distributers of MiFID ‘products’
  • introduction of a harmonised commodity position limits regime

Investment companies often refer to the third requirement in news releases and report & accounts, as it is a major change.

Investment managers can no longer take research from investment banks and research houses in return for the placing of trades (the buying or selling of assets) through their trading desks and can no longer be covered from broker dealing commissions. This is considered an “inducement”. Investment companies must now pay for research and disclose to shareholders how much they pay.  They must also disclose with which brokers they traded and the cost of trading.

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