MiFID II FAQs

Frequently asked questions

DISCLAIMER
Please note this information does not represent in any form legal or regulatory advice. Firms are required to seek their own professional advice to ensure compliance with MiFID II.

MiFID II is the revised Markets in Financial Instrument Directive and is accompanied by the Markets in Financial Instruments Regulation (MiFIR). These European laws replaced the existing regulatory regime, MiFID I, when they come into force on 3rd January 2018.
 
MiFID II introduced pre- and post-trade transparency requirements to the non-equities world, both with respect to activity on trading venues and Over-the-Counter (OTC). Beyond this, MiFiD II also provides for customer protections, controls in areas such as algorithmic trading, and the implementation of the G-20 obligations as a result of the 2008 financial crisis and the US ‘flash crash’ of 2010.

MiFID II introduced a pre- and post-trade transparency regime to the non-equities world with respect to both trades on a trading venue and to OTC trades.
 
There is a requirement to publish both orders submitted to, and trades executed on, a trading venue. The obligation to publish orders is waived in the case of a pre-trade transparency waiver and the obligation to publish trades is deferred in the case of a post-trade transparency deferral. More information regarding the non-equities pre- and post-trade transparency regime and the MTS approach to this can be found under Transparency Requirements and Waivers.

Trade reporting refers to the obligation on trading venues to publish trades executed under their rules. Investment firms are required to report OTC trades as soon as technically possible, and no later than 15 minutes after the trade, to an Approved Publication Arrangement (APA). This is to achieve transparency to the market.
 
Transaction reporting refers to the obligation on investment firms to report trades no later than the close of the following working day to the relevant national competent authority, directly, through an ARM, or through a trading venue. This is for market abuse monitoring.

Trading venues have a number of obligations in relation to algorithmic trading, including order record keeping (RTS 24), reporting transactions on their venues by non-MiFID firms (RTS 22), and systems and controls (RTS 7).
 
MTS provides a test environment as one of the facilities market participants may use to test their algorithms before deployment. Members are required to self-certify to MTS that the algorithms they deploy have been appropriately tested with an explanation of the means of testing.
 
MTS is required to associate algorithms associated with the investment decision or execution as part of its order record keeping and transaction reporting requirements. For more information on the MTS approach to algo testing and algo IDs please visit Trading Venue and Microstructure Requirements.

As mentioned above, trading venues are required to collect, store and, where relevant, report information about Algo IDs and National IDs for the purposes of order records keeping (RTS 24) and transactions reporting for non MiFID members (RTS 22).
 
In order to minimize the information which has to travel with the orders and the quotes in the market and to ensure appropriate security standards of confidential information, MTS has a process by which member firms are required to register the relevant Algo ID and National ID codes (the so-called long codes) in the market and then associate to each of them a short code, which is the actual information that is attached to each order message of the market.
 
Algo ID and National ID long codes have to comply with the MiFID II formatting requirements, while short codes are created and maintained by the member firms. For more information, please visit Trading Venue and Microstructure Requirements.

Execution venues, defined in RTS 27 as trading venues (Regulated Markets, MTFs, and OTFs), systematic internalisers, market makers, and other liquidity providers are required under MiFID II Article 27 to publicly provide quarterly quality of execution reports free of charge. These cover areas including price, costs, speed and likelihood of execution to assist firms in choosing venues for best execution purposes.

Any members of MTS trading venues which are not subject to MiFID II are nonetheless impacted by certain requirements of MiFID II, by virtue of being a member of an EU/UK Trading Venue. Among other things, Members are required to provide specific information to the trading venue, including for the purposes of order records keeping, transactions reporting and algo testing. The extent of the information required varies based on the trading capacity (dealing on own account, dealing as agent or matched principal) under which the firm undertakes trading activity on MTS markets.