The main difference between MiFID and MiFIR is that the directive (MiFID) sets out the goals that EU member states should strive to meet, whereas the regulation (MiFIR) imposes rules that all countries must follow. MiFID II is a legislative act that sets out goals that all countries in the EU need to achieve.

The Difference between MiFIR and MiFID

The Markets in Financial Instruments Directive (MiFID) is a European Union law that aims to harmonize regulations for financial markets within the EU. It was introduced in 2007 and has undergone revisions over time to enhance transparency, investor protection, and market efficiency. Alongside MiFID, the Markets in Financial Instruments Regulation (MiFIR) was implemented in 2018 to complement and strengthen the provisions of MiFID.

Understanding MiFID

MiFID primarily focuses on the regulatory framework for investment services and activities across EU member states. It establishes rules and standards for investment firms, exchanges, and other trading platforms to ensure fair competition and equal treatment of investors. The directive covers various aspects, including licensing requirements, organizational requirements, conduct of business rules, and transparency obligations.

Key objectives of MiFID include:

• Promoting investor protection through adequate disclosure of information, suitability assessments, and best execution obligations by investment firms.
• Enhancing transparency in financial markets and increasing pre-trade and post-trade transparency for various asset classes.
• Promoting competition by facilitating access to trading venues and central counterparties for market participants.

Introducing MiFIR

MiFIR works alongside MiFID and extends its scope to cover additional areas of financial markets. While MiFID focuses on the regulation of investment firms and venues, MiFIR addresses infrastructure, trading, and reporting requirements. It aims to enhance market integrity, stability, and investor protection by imposing stricter rules.

Key features of MiFIR include:

• Transaction reporting obligations: Investment firms are required to report details of all transactions in financial instruments to competent authorities, ensuring transparency and market surveillance.
• Trading obligations: Certain standard derivatives contracts must be traded on regulated platforms, such as organized trading facilities (OTFs) or multilateral trading facilities (MTFs), to increase market transparency and reduce risks.
• Clearing obligations: MiFIR introduces mandatory central clearing for certain classes of derivatives, reducing counterparty credit risk and increasing stability in the financial system.

The Relationship between MiFID and MiFIR

MiFID and MiFIR are interdependent regulations that work together to create a comprehensive framework for financial markets within the EU. While MiFID lays down the foundation for investor protection and fair markets, MiFIR adds specific rules and requirements to ensure transparency, stability, and efficient functioning.

In summary, MiFID primarily focuses on regulating investment firms and trading venues, whereas MiFIR complements it by addressing areas such as transaction reporting, trading obligations, and clearing obligations. Together, these regulations aim to foster competitive, transparent, and secure financial markets in the European Union.