The Markets in Financial Instruments Directive (MiFID) is a European Union (EU) regulation that governs the provision of investment services across member states. It aims to harmonize financial markets within the EU, increase competition, and protect investors. The original MiFID was implemented in 2007 and was later revised in 2014 to become MiFID II, which came into effect on January 3, 2018.

Key Differences:

1. Scope: One major difference between MiFID and MiFID II lies in their scope. MiFID primarily covered equities, bonds, derivatives, and other non-exchange-traded products. MiFID II expands the regulatory framework to include a broader range of financial instruments, including commodities, emission allowances, structured deposits, and more.
2. Transparency: MiFID II places a stronger emphasis on transparency in the financial markets. It introduces new reporting requirements, such as pre-trade and post-trade transparency obligations, transaction reporting, and order record keeping. These measures aim to enhance market integrity and investor protection by increasing transparency and reducing the potential for market abuse.
3. Investor Protection: MiFID II significantly enhances investor protection compared to its predecessor. It introduces stricter rules regarding product governance, ensuring that investment firms provide suitable products and services to clients. Additionally, it imposes stricter standards for the assessment of client suitability and appropriateness, requiring investment firms to gather more detailed information about their clients’ knowledge, experience, and risk tolerance.
4. Data Reporting: MiFID II introduces comprehensive data reporting requirements. Investment firms must provide regulators with more detailed and timely information on trades, transactions, and order book events. This data enables regulators to monitor market activities more effectively and detect potential market abuse or systemic risks.
5. High-Frequency Trading (HFT): In response to the growth of high-frequency trading, MiFID II introduces specific provisions to regulate this activity. It requires HFT firms to be authorized and imposes stricter controls on algorithmic trading, including testing and supervision requirements. The aim is to ensure that HFT activities do not pose risks to market stability, fairness, or integrity.

In summary, while both MiFID and MiFID II share the objective of harmonizing financial markets within the EU and protecting investors, MiFID II expands the regulatory scope, enhances transparency, strengthens investor protection, introduces comprehensive data reporting requirements, and regulates high-frequency trading more rigorously compared to its predecessor.

Overall, MiFID II represents a significant milestone in the EU’s regulation of financial markets, aiming to create a safer and more transparent environment for investors while promoting fair competition and stability.