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What is MiFID - The Markets In Financial Instruments Directive?

Regulation Knowledge & Training

EU flag among the grey skyThe Markets in Financial Instruments Directive (MiFID) was created in 2004 to replace the Investment Services Directive, and it was implemented in 2007. A new law, known as MiFID II, has since replaced MiFID.

The EU hoped that the directive would help to increase competition amongst investment services while also boosting consumer protection and providing harmonious regulations for all participating states.

What is MiFID?

The Markets in Financial Instruments Directive, commonly known as MiFID, was created by the European Union to standardize regulations for all investment services in the European Union’s financial market. The aim is to increase competition and investor protection for market participants in the investment services.


There are several key aspects of MiFID that are meant to aid the regulation of the financial industry, including AML regulations. One of these is the requirement of client categorization. Due to MiFID, firms are required to place their clients into categories in order to determine the level of protection that is needed with their types of accounts and investments.

MiFID also requires that firms abide by both pre-trade and post-trade transparency. Pre-trade transparency means that those who operate order-matching systems must make information regarding the five best pricing levels (on both buy and sell side) available to all. Similarly, those who run quote-driven markets must make the best bids and offers publicly available.

Post-trade transparency is a similar concept, but differs slightly. By requiring post-trade transparency, MiFID requires that firms release information regarding the price, time, and volume of all trades pertaining to listed shares, even if they are not executed in an open market scenario. There are certain circumstances where deferred publication may be granted, but that varies from case to case and must be dealt with on an individual level.

Additionally, MiFID requires that investment firms complete “best execution” when dealing with all transactions. This means not only that the firm strives to achieve the highest price for its client, but also that it tries to limit costs and the time taken to complete a transaction. Many factors may be deemed relevant in these scenarios; some additional considerations include the likelihood of execution and settlement.

The Effects of MiFID

Although MiFID did achieve one of its major goals—increasing the transparency of the investment market—its regulations have spurred some unexpected results in the financial sector. Previously, investment firms were only able to gather information from one or two different exchanges that were made public. Now, they are able (and sometimes even required) to gather information from all outlets that have publicly released their prices and details. This adds a fair amount of unexpected work, especially if a firm wishes to benefit as much as possible from the new transparency they are afforded. In order to deal with this issue, financial data vendors have become quite popular. They help financial institutions deal with the fragmentation of information and enable them to have access to as many details as possible.

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Originally published July 1, 2014, updated January 13, 2023

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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