• MiFID II and MiFIR
  • PRIIPs
  • Asset Management
  • FX Global Code of Conduct

Markets in Financial Instruments Directive / Regulation (MiFID / MiFIR)

The Markets in Financial Instruments Directive II (“MiFID II”) and the accompanying Markets in Financial Instruments Regulation (“MiFIR”) are both pieces of legislation originating from the European Commission and together seek to provide an EU-wide regulatory framework for the operation of financial markets. MiFID II represents a major overhaul of the existing law, building on and extending the scope of the first Markets in Financial Instruments Directive, which originally came into force in November 2007. MiFID II introduces stringent requirements relating to communication, disclosure, and transparency in favor of investors.

A key objective of MiFID II is ensuring firms provide the best execution for their clients. Best execution has several aims, including:

  • to ensure that investment firms execute client orders on terms that are most favorable to the client” (MiFID II Recital 91);
  • to sustain the integrity of the price formation process; and
  • to promote competition among trading venues in increasingly fragmented markets.

Best execution obligations apply to firms when they are executing orders on behalf of their clients, which will generally be the case when a firm owes contractual or agency obligations to a client (MiFID II Recital 33) or the client legitimately relies on the firm to protect their interests in relation to the execution of the transaction (FCA Thematic Review).

The final legislative texts of MiFID II and MiFIR were approved by the European Parliament on 15 April 2014 and by the European Council on 13 May 2014. The two texts were published in the Official Journal on 12 June 2014 and entered into force on 2 July 2014. Many of the obligations under MiFID II and MiFIR were further specified in the Commission Delegated Directive and Commission Delegated Regulations (see below), as well as regulatory and implementing technical standards developed by the European Securities and Markets Authority (ESMA).  MiFID II and MiFIR, together with the Commission delegated acts as well as regulatory and implementing technical standards, will be applicable from 3 January 2018.

Regulatory technical and implementing standards – Annex I (Draft) (28 September 2015)
Commission Delegated Directive (EU) 2017/593 (7 April 2016) with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits (OJ L 87, 31.3.2017, p. 500–517)
Commission Delegated Regulation (EU) 2017/567 (18 May 2016) with regard to definitions, transparency, portfolio compression, and supervisory measures
Commission Delegated Regulation 2017/565 (31 March 2017) on organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (defining spot and derivative contracts relating to currencies)
Commission Delegated Regulation (EU) 2017/576 of 8 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council (31 March 2017) with regard to regulatory technical standards for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution (RTS 28 – Top Five Execution Venues)
Commission Delegated Regulation 2017/583 (31 March 2017) on markets in financial instruments with regard to regulatory technical standards on transparency requirements
Commission Delegated Regulation 2017/585 (31 March 2017) on data standards and formats for financial instrument reference data supplementing MiFIR

Questions & Answers

ESMA has developed various Question and Answer(Q&A) documents in support of MiFID/MiFIR, the purpose of which is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR.  They provide responses to questions posed by the general public, market participants, and competent authorities in relation to the practical application of MiFID II and MiFIR.  The content of these documents is not exhaustive and does not constitute a new policy.  ESMA will periodically review these Q&As on a regular basis to update them where required and to identify if, in a certain area, there is a need to convert some of the material into ESMA Guidelines and recommendations. These documents are intended to be continually edited and updated as and when new questions are received. The date on which each section was last amended is included for ease of reference.

ESMA Q&A on Investor Protection under MiFID II (18 December 2017)
ESMA Q&A on  MiFID II and MiFIR market structures topics (15 November 2017)
ESMA Q&A on MiFID II and MiFIR transparency topics (15 November 2017)
ESMA Q&A on MiFIR data reporting (14 November 2017)
ESMA Q&A 0n MiFID II and MiFIR commodity derivatives topics (14 November 2017)


The PRIIPs Regulation will be directly applicable within the European Union (EU) from 1 January 2018 and will not require transposition by domestic United Kingdom (UK) legislation. This regulation will oblige manufacturers and distributors of products that fall under it to provide a Key Information Document (KID) that clearly describes the product features, costs, and risks to retail investors before they invest.  Following the UK leaving the EU, the FCA has noted that the PRIIPs Regulation will form part of the body of EU legislation that is converted into UK law.  The BestX® FX Best Execution Analytics can be a substantial aid in meeting the PRIIPS regulations as relate to FX.    The application will allows users to assess the FX price received against an independent consolidated measure of the mid price in accordance with the RTS.

FCA’s disclosure rules following application of PRIIPs Regulation
May 2 2017

PRIIPS Regulation
Nov 26 2014

PRIIPS Regulatory Technical Standards (RTS)
Mar 08 2017

Asset Management

On June 28 2017 the FCA released its Asset Management Market Study Final Report (MS 15/23) in which it proposed an overall package of remedies to make competition work better, and protect those least able to actively engage with their asset manager.  The study found that on trading and execution costs, “most firms did not have adequate management focus, front-office business practices or supporting controls to meet our current requirements on best execution”. The study also found that firms can earn significant administration fees on top of the AMC. The package of remedies will increase the transparency of costs so that those seeking information can get it.

The study emphasized the changes due to come into place at the start of 2018 under PRIIPs and MiFID II. “The new provisions under MiFID II go beyond what is currently required and will introduce new requirements for firms to provide aggregated and on-going information on all costs. Firms will, where applicable, need to provide the aggregated information to the client on a regular basis, at least annually, for the lifetime of the investment. Firms must also provide an itemized breakdown of costs when the client requests it. These changes will give consumers a greater understanding of the full costs and charges of the investment products and services that they are buying. Both PRIIPs and MiFID II will require firms to calculate and disclose indirect costs such as transaction costs and to present charges as a cash amount in cost disclosure documents. This will allow the client to understand the overall cost as well as the cumulative effect on the return of the investment.” To learn more, please see the FCA Asset Management Study website.

The study also highlighted that reforms under MiFID II mean that there will be greater obligations around best execution for asset managers. The new, more comprehensive best execution provisions in MiFID II will also strengthen the content and quality of disclosure to clients. Asset managers will be expected to step up their efforts to obtain the best possible result for their clients when placing orders with brokers on behalf of their clients. They will also be required to provide greater transparency on execution quality including the top five entities to which they sent orders for execution in the preceding year. The FCA noted that there is also an expectation that these requirements will increase firms’ monitoring of their own execution quality.

FCA’s Asset Management Market Study Final Report (MS 15/2.3)

FCA publishes final report into the asset management sector

Investment Managers still failing to ensure effective oversight of best execution

FX Global Code of Conduct

The release of the final Global Code of Conduct (“Code”) on 25 May 2017 is a watershed moment for the foreign exchange (FX) market.  The FX market, which is a global decentralized market for the trading of currencies, is the largest market in the world in terms of trading volume, with a turnover of more than $5 trillion a day.  The Code was developed by the Foreign Exchange Working Group (“FXWG”) working under the auspices of the Markets Committee of the Bank for International Settlements (“BIS”).  The Code was also created in partnership with a diverse Market Participants Group (MPG) from the private sector.  A Global Foreign Exchange Committee, formed of public and private sector representatives, including central banks, will promote and maintain the principles.

The Code establishes a common set of 55 principles for good practice in the FX market, including ethics, transparency, governance, information sharing, electronic trading, algorithmic trading, and prime brokerage.  The FCA has expressly stated that they expect firms to be able to demonstrate adherence to such standards of market conduct. Our articles on the code are available here.  Our software is designed with the Global Code in mind, and specifically allows users to demonstrate compliance with key provisions including the following:

1.      Fair Mark-Up

Principle 14 of the FX Global Code sets out various requirements relating to the application of mark-up by firms trading as principal with their clients, including maintaining policies and procedures such that “prices charged to clients are fair and reasonable considering applicable market conditions …”. In addition, firms should have in place “processes to monitor whether their Mark Up practices are consistent with their policies and procedures”.

The application allows users to evaluate prices proposed or charged to clients by comparing them against a broad, representative market data set sourced from multiple independent providers, aggregating as many sources as are available to provide reliable measures of mid at any point during the trading day. A combination of indicative quotes and anonymized trade data (i.e. actual executed prices) is utilized.Trades may also be compared against a range of benchmarks and take account of market conditions and allows users to consistently test delivery using exception reports and intelligent management information.

2.     Algorithmic Trading

Principle 18 of the FX Global Code states that market participants providing algorithmic trading or aggregation services to clients should disclose sufficient information to enable the client to evaluate the performance of the service, and clients of algorithmic trading providers should use such data and disclose information to evaluate, on an ongoing basis, the appropriateness of the trading strategy to their execution strategy.

The application measures a wide array of parent and child algorithmic order performance metrics, including, inter alia, price, benchmark performance (across an array of benchmarks including Interval TWAP), spread costs, market impact, post-trade revaluations, signaling risk, speed, and implementation shortfall. The Trade Inspector screen allows users to drill down into the details of each child’s order.  Moreover, the software allows large samples of algorithmic trades to be measured on a consistent basis, allowing statistically significant conclusions to be drawn.

Key documents related to the Global Code are listed below:

Bank for International Settlements

GFXC Request for Feedback on Last Look practices in the FX Market: Results and Recommendations
Dec 2017

GFXC Last Look Consultation responses
Nov 2017

Update from 14 November GFXC meeting
Nov 2017

FX Global Code published
May 25, 2017

Guy Debelle (Deputy Governor RBA) update on FX Global Code of Conduct
Mar 2017

Global Code of Conduct for the Foreign Exchange Market
May 2016

FX Global Code: Public Update on Adherence
May 2016

Financial Stability Board (FSB)
Bank of England

Financial Conduct Authority (FCA)