MiFID
MiFID is a European investment directive, standing for the Markets in Financial Instruments Directive.
This directive came into effect in the European Union on 1 November 2007 and has three objectives.
- To protect investors and the integrity of the financial markets.
- To promote honest, transparent, efficient and integrated financial markets.
- The further harmonisation of European stock exchange dealings and the investment market.
In addition to clearer regulation, it is anticipated that the introduction of MiFID will
be responsible for more trading opportunities in Europe. It is permitted for financial
institutions to deal with their clients' orders internally instead of forwarding them on to the securities
market. MiFID's requirement is for compliance with best execution; the investor must get the best conditions.
This entails banks having to compare prices on several stock exchanges.
MiFID is in force in the 27 countries of the European Union as well as in Norway,
Liechtenstein and Iceland.
MTF
MTF stands for Multilateral Trading Facility and is a new type of trading platform.
Financial instruments listed on primary exchanges such as Euronext, the London Stock
Exchange and the German exchange Xetra are traded on MTF's. The main difference between a stock exchange and
an MTF is that the requirements that are imposed on the businesses whose securities have been admitted to the
trading platform. These rules do not have to be applied to an issuing institution for which
only its financial instruments have been admitted for trading in an MTF. The extent to
which certain rules are imposed is up to the proprietor of an MTF.
Chi-X
Chi-X was started up in April 2007 as a European alternative stock exchange with the status
of an MTF. Shares are traded on this exchange that have been listed on primary exchanges, such as
Euronext, the London Stock Exchange and the German exchange Xetra.
Best Execution Policy
According to MiFID, an investment business must take all reasonable measures to execute the orders
at the best possible result and within a reasonable period of time (best execution). In addition,
it must set out an ‘order execution policy’. That policy must specify where the orders can be executed
and the factors that determine the place of execution. Investment businesses must be able to demonstrate
that orders have been executed in conformity with the order execution policy. Furthermore, they must notify
their non-professional clients about this order execution policy. In theory, an investment business must
re-evaluate its order execution policy each year.
Stock exchanges and trading platforms
In addition to traditional stock exchanges, such as Euronext, increasing numbers of alternative exchanges
or trading platforms have been appearing in recent years. Chi-X, Bats and Turquoise are examples of these. It is through
these trading platforms that trading can be done outside of the traditional stock exchanges. The stock
exchange on which the shares are being traded no longer matters with regard to these trading platforms;
all that matters is the presence of trading volume.