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Market transparency under MiFID II / MiFIR

What do MiFID II/MiFIR regulate?

Together, MiFID II and MiFIR establish the legal framework governing the requirements applicable to investment firms, trading venues, data reporting service providers and third-country firms providing investment services or activities in the Union.

The comments in this section do not provide an overall picture of the area regulated by MiFID II/MiFIR. Instead, they focus on the reporting duties of market participants. These reporting duties serve to increase pre- and post-trade transparency in the trading of financial instruments.

Directive 2004/39/EC (Directive of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments; Markets in Financial Instruments Directive, MiFID I) has been partly amended by MiFID II and partly replaced by Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012 (Markets in Financial Instruments Regulation, MiFIR). Directive 2004/39/EC was transposed into Liechtenstein law by the Law on Banks and Investment Firms (Banking Act – Gesetz über die Banken und Wertpapierfirmen, BankG) and the Asset Management Act (Gesetz über die Vermögensverwaltung, VVG).

The following new aspects of the MiFID II and MiFIR regulatory regime should be mentioned in relation to the increase in market transparency:

  • Extension of the financial instruments covered to include commodities and other derivatives, which are comparable with traditional financial instruments from the regulatory perspective
  • Increased regulation of markets for financial instruments – including in respect of over-the-counter (OTC) trading – to increase transparency and to strengthen investor confidence
  • Regulation of certain trading techniques, in particular high-frequency algorithmic trading

The MiFIR will apply directly in each Member State as from 3 January 2018 and, once incorporated into the EEA acquis, will also not have to be transposed at the national level in Liechtenstein.

The Securities and Markets Division is responsible for, among other things, market-related reporting duties under MiFID II/MiFIR. New authorisations of market participants or changes to existing authorisations of market participants are governed by the relevant special laws. The Banking Division is responsible for investment firms and banks pursuant to the Banking Act, while the Securities and Markets Division is responsible for asset management companies.

What are the MiFID II’s objectives in relation to market transparency and who is affected?

The provisions of the Directive (together with those of the MiFIR) are primarily aimed at:

  • Ensuring that trading in financial products is carried out at regulated trading venues: The goal is to close the gaps in the structure of financial markets. MiFID II establishes new regulated trading platforms to handle as many of the non-regulated trading activities as possible. These organised trading facilities (OTFs) will coexist alongside existing trading platforms such as, for example, the regulated markets.
  • Increased transparency: The rules strengthen the transparency requirements which apply to pre- and post trading in financial instruments, for example, where market participants must disclose information about the prices of financial instruments. These requirements are measured in different ways depending on the type of financial instrument.
  • Reduction in commodity speculation: Commodity speculation – a financial practice which leads to higher prices for basic products (e.g. agricultural basic products) – will be reduced through the introduction of a harmonised EU system that sets position limits for commodity derivatives. National authorities will be able to define the maximum size of a position in a commodity derivative that a market participant may hold.
  • Adjustment of the rules to new technologies: According to the new rules, trading activities which are executed electronically at a very high speed (in milliseconds or microseconds) will be monitored. This will include, for example, high-frequency trading. The potential risks from increased use of technology will be curtailed through a combination of rules aimed at ensuring that these trading techniques do not disrupt markets.

How will MiFID II/MiFIR be implemented in Liechtenstein?

The implementation of MiFID II required extensive revision of the Banking Act, Asset Management Act, Banking Ordinance (Bankenverordnung, BankV) and the Asset Management Ordinance (Vermögensverwaltungsverordnung, VVO) as well as amendments to, among others, the Act on Certain Undertakings for Collective Investment in Transferable Securities (UCITS Act – Gesetz über bestimmte Organismen für gemeinsame Anlagen in Wertpapieren, UCITSG) and the Financial Market Supervision Act (FMA Act – Finanzmarktaufsichtgesetz, FMAG). The legislative process at the national level has been finalised and the amendments entered into force on 3 January 2018.

What is the current status of the implementation?

You can check the current status of the EEA adoption procedure for MiFID II/MiFIR by clicking on the following link.