MiFID II / MiFIR review: the main changes and implications

On 28 March 2024, significant amendments to the Markets in Financial Instruments Directive (MiFID II, see consolidated version here) and amendments to the Markets in Financial Instruments Regulation (MiFIR, see consolidated version here) came into force, marking a decisive change in the European Union's financial regulatory landscape.

The review aims to increase market transparency, enhance investor protection and promote a more competitive and efficient financial market in the EU.

Key MiFIR changes

Improved market transparency

A uniform volume limit of 7% is introduced for trading with exceptions, replacing the previous double volume limit system. In addition, the quotation regime for systematic internalisers in equity instruments has been revised. Furthermore, the obligation to trade shares, which now applies – with some exceptions – to EEA ISINs that are traded on a trading venue, has been adjusted.

Consolidated Tape Provider (CTP)

A framework has been created for EU-wide ‘consolidated tape’ services for various asset classes, providing centralised market data feeds.

Prohibition of payment for order flow (PFOF)

A general prohibition of PFOF has been introduced, with a temporary exemption until 30 June 2026 for member states where this practice was already in place.

Main MiFID II changes

Requirements for investment firms

An obligation has been introduced for Member States to require investment firms and market operators operating MTFs or OTFs to have arrangements in place to meet enhanced data quality standards.

Furthermore, the existing licensing requirement for persons who trade on their own account on a trading venue through direct electronic access has been removed, provided they do not offer other investment services.

Regulated markets

In the future, member states must ensure that regulated markets have arrangements in place to meet new data quality standards.

Reporting and Disclosure

The previous requirement for investment firms to make available detailed periodic reports (so-called RTS 28 reports) to the public has been abolished.

Client Communication

Finally, electronic communication has been established as the default method for investment firms to communicate with clients, although retail clients must continue to have the option to receive information on paper.

Timetable for implementation

The changes came into force on 28 March 2024. However, they are being applied in different phases:

• The MiFIR changes took effect immediately.
• The MiFID II amendments are to be transposed into national law by Member States by 29 September 2025.
• Existing Level 2 regulations continue to apply until they are revised, at which point ESMA will begin consultations to develop these revised regulations.

Impact for firms

Financial institutions and market participants should prepare to:

• adapt to new transparency and reporting requirements;
• reviewing and updating order execution policies in line with the new criteria developed by ESMA;
• assessing the impact of the PFOF ban on their business models and client relationships;
• preparing for the potential opportunities and challenges arising from the consolidated tape.