MiFID & MiFIR

MiFID is a comprehensive regulatory framework which covers how EU investment firms provide investment services and activities to their clients, irrespective if where clients are located or where the financial instrument is listed or traded. The MiFID scope is defined by reference a series of activities (such as dealing, advising, carrying out portfolio management) and a series of financial instruments (such as transferable securities (bonds, equities) derivatives, futures, but notably excludes spot fx. It also covers so called ancillary services such as safekeeping investments, investment research and fx services in connection with investment business. MiFID also applies to regulated exchanges and alternative trading venues (such as OTFs, MTFs and Systematic internalisers) and market infrastructure firms such as CCPs.

EU investment firms must be authorised to provide MiFID investment activities and services within the EU and there are usually specific requirements that apply to non-EU firms providing investment services into the EU. MiFID firms must comply with management and organisational requirements such as record keeping, outsourcing, systems and controls, conflicts of interest, as well as conduct of business rules such as best execution, suitability, information to clients, reporting and product governance. There are also significant pre- and post-trade transparency rules applicable to classes of financial instruments, transaction reporting to regulators and mandatory trading and clearing obligations.

MiFID together with delegated directives and regulations, as well as all the Level 2 technical and implementing measures (of which there are more than 28) and Level 3 guidelines accumulated over the MiFID lifetime, comprise a complex and voluminous set of regulatory requirements which firms must carefully navigate and apply to their business lines and models. In addition, there are other legislative regimes that may also apply to MiFID firms, such as the Market Abuse regime, EMIR, SFTR, AIFMD as well as in some cases local member state requirements, all of which must be considered simultaneously or in conjunction with MiFID depending on the market segment and business activity.

Investment firms securities lending and borrowing business (SBL) is covered by MiFID requirements to the extent that SBL transactions concern MiFID instruments; MiFID investment firms will also be impacted as regards conduct of business, best execution, safeguarding assets and other organisational and general requirements of MiFID. SBL is excluded from pre-trade transparency requirements of MiFID as it does not contribute to price discovery, and post trade reporting is concluded under the SFTR regime instead of MiFID (with the exception of RTS 22 reporting for SFT transactions with the ECB).

ISLA monitors developments to MiFID through its Regulation and Market Practice group and reports on any proposals which may impact securities lending and borrowing markets. Throughout the years ISLA has commented on many MiFID proposals and consultations on behalf of its members, and in association with other trade organisations. Most recently, in October 2024, ISLA has responded to the proposed ESMA RTS on order execution policy.

MiFID is a key regulatory regime that impacts securities lending and borrowing participants, and in 2018 ISLA together with Clifford Chance published a MiFID 2 analysis for securities lending market participants. This document focused on both general and specific matters of MiFID in response to issues most commonly raised by member firms and is a useful resource to help member firms understand the application of the MiFID regime to securities borrowing and lending activities.