MiFID

MiFID – the Markets in Financial Instruments Directive – comes into effect on 1 November 2007, when it will replace the existing Investment Services Directive (ISD). MiFID will introduce a single market and regulatory regime for investment services across the 30 member states of the European Economic Area.

There are 3 objectives to be met by the Directive. First, to complete the process of creating a single EU market for investment services. Second, to respond to changes and innovations which have occurred in securities markets. Third, to protect investors by making markets deeper, more competitive and more robust against fraud and abuse. It will replace the Investment Services Directive (Directive 93/22/EEC).

Most firms that fall within the scope of MiFID will also have to comply with the new Capital Requirements Directive (CRD) which will set requirements for the regulatory capital a firm must hold. Those firms newly covered by MiFID will be subject to directive-based capital requirements for the first time.

In order to determine which firms are affected by MiFID and which aren't, MiFID distinguishes between "investment services and activities" ("core" services) and "ancillary services" ("non-core" services). If a firm performs investment services and activities, it is subject to MiFID in respect both of these and also of ancillary services (and it can use the MiFID passport to provide them to member states other than its home state). However if a firm only performs ancillary services, it is not subject to MiFID (but nor can it benefit from the MiFID passport). MiFID covers almost all tradable financial products with the exception of foreign exchange trades. This includes commodity and freight derivatives which are not covered by ISD.

Impact on firms

In general MiFID will cover most, if not all, firms currently subject to the ISD, plus some that currently are not. This will include investment banks, portfolio managers, stockbrokers and broker dealers, corporate finance firms, many futures and options firms and some commodities firms. In some areas, the position for firms will be less clear-cut. For instance, retail banks and building societies will be subject to MiFID for some parts of their business – for example, selling securities, or investment products which contain securities, to customers - but not others.