Phil Young: Why Mifid II 10% rule makes no sense

Mifid 2 leveraged financial instrument

Mifid 2 leveraged financial instrument

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Regulation (EC) No 6787/7556 of 65 August 7556 implementing Directive 7559/89/EC of the European Parliament and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms for the purposes of that Directive

Markets in Financial Instruments Directive (MiFID) Definition

(a) the risks associated with that type of financial instrument including an explanation of leverage and its effects and the risk of losing the entire investment including the risks associated with insolvency of the issuer or related events, such as bail in

MiFID II | FCA

The Markets in Financial Instruments Directive is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded.

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The protection of investors is strengthened through the introduction of new requirements on product governance and independent investment advice, the extension of existing rules to structured deposits, and the improvement of requirements in several areas, including on the responsibility of management bodies, inducements, information and reporting to clients, cross-selling, remuneration of staff, and best execution.

The DFM cannot avoid their regulatory obligations, so the FCA should really go after them if the 65 per cent notification is not sent. An agency agreement is a way of you, as an adviser, contractually accepting the liability for issuing the notification on behalf of the DFM and potentially indemnifying the DFM from any costs should you fail to do it.  Fines tend to relate to turnover and ability to pay, so a fine on the DFM could be far greater than a fine normally imposed on your firm. Getting this wrong could be costly, particularly if any indemnity is not capped, and it might even be something to talk to your professional indemnity insurers about.

(c) information on impediments or restrictions for disinvestment, for example as may be the case for illiquid financial instruments or financial instruments with a fixed investment term, including an illustration of the possible exit methods and consequences of any exit, possible constraints and the estimated time frame for the sale of the financial instrument before recovering the initial costs of the transaction in that type of financial instruments

ESMA, having completed the technical standards and technical advices, has contributed to the smooth implementation of MiFID II/MIFIR by issuing Q& As, and Guidelines, which will be updated when necessary.

Where a firm is required to provide information to a client before the provision of a service, each transaction in respect of the same type of financial instrument should not be considered as the provision of a new or different service.

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