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Summaries of EU Legislation

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Markets in financial instruments (MiFID) and investment services

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Markets in financial instruments (MiFID) and investment services

The European Union (EU) has established a comprehensive regulatory regime for the organised execution of investor transactions by stock markets, other trading systems and investment firms. In so doing, it has among other things created a single authorisation for investment firms which will enable them to do business anywhere in the EU with a minimum of red tape while increasing customer protection.


Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC [Official Journal L 145 of 30.4.2004]. [See amending acts].


In accordance with the Financial Services Action Plan , the EU has adopted a Directive designed to strengthen the Community legislative framework for investment services and regulated markets with a view to furthering two major objectives:

  • to protect investors and safeguard market integrity by establishing harmonised requirements governing the activities of authorised intermediaries;
  • to promote fair, transparent, efficient and integrated financial markets.

Directive 2004/39/EC has recently been recast in the framework of Directive 2014/65/EU (so-called MiFID 2), in an effort to incorporate the significant amendments made to the text.

Authorisation conditions and procedures

The Directive requires the Member States to harmonise the rules governing investment services and activities. To that end, the Member States must set up an authorisation system enabling investment firms to operate throughout the EU. These firms must be registered and the register must be accessible to the public. Each authorisation is notified to the European Securities and Markets Authority (ESMA).

ESMA is able to develop draft regulatory technical standards. Furthermore, it assists the Commission in its relations with third countries and in assessing their markets.

In other words, the Directive must allow investment firms, banks and stock exchanges to offer their services across borders on the basis of the authorisation issued by the competent authority of their home Member State . Since authorisation is subject to the same conditions in all the Member States, it will promote the harmonisation of rules governing investment firms.

In this context, the Directive is intended to align national rules governing the provision of investment services and the operation of stock exchanges, with the ultimate aim of creating a single European securities rule book . It will benefit investors, issuers and other market stakeholders by promoting efficient and competitive markets.

Prudential assessment

This Directive is also intended to establish the harmonisation of the assessment rules of procedure and criteria for the acquisition of a qualifying holding . Its objectives include the maximum harmonisation of the notification thresholds for an envisaged acquisition or the disposal of a qualifying holding, and the maximum harmonisation of the assessment procedure and the list of assessment criteria.

In the context of an envisaged acquisition, the prudential assessment of the shareholders and of management fulfils detailed criteria and is conducted jointly by the competent authorities.

The Directive states in particular that the competent authorities judge the appropriateness of the proposed acquirer and the financial soundness of the envisaged acquisition on the basis of:

  • the reputation and experience of those who direct the business of the insurance company following the envisaged acquisition;
  • the financial soundness of the proposed acquirer;
  • the existence of reasonable grounds to suspect an operation or attempt to launder money or finance terrorism.

Investor protection

The Directive will considerably enhance investor protection by setting business of conduct rules for providing investment services to clients and minimum standards for the mandate and powers that national competent authorities must have at their disposal. It also establishes effective mechanisms for real-time cooperation in investigating and prosecuting breaches of the rules.

Transparency and market integrity

The Directive creates an obligation to safeguard market integrity, to report transactions and to keep records. ESMA has access to this information.

In particular, it establishes a pre-trade transparency obligation. This requires internalisers (i.e. firms dealing on own account by executing client orders outside regulated markets or multilateral trading facilities ) to disclose the prices at which they will be willing to buy from and/or sell to their clients. However, it limits this disclosure obligation to transactions not above standard market size, defined as the average size of orders executed in the market.

Each Member State is responsible for establishing a list of regulated markets and communicating this to the other Member States and ESMA.

This means that European wholesale markets will not be subject to the pre-trade transparency rule and that wholesale broker-dealers will not be exposed to significant risks in their role as market makers.

Operator protection

The Directive includes a set of protective measures for internalisers when they are obliged to quote, so that they can provide this essential service to clients without running undesirable risks. These measures include the possibility of updating and withdrawing quotes.

The Directive also establishes a fair market for retail investors. It prevents financial institutions from discriminating between such investors, e.g. by offering some of them improvements to publicly quoted prices.

Appointing competent authorities

Member States must appoint their competent authorities and send the necessary information to the Commission, ESMA and the competent authorities of the other Member States. The competent authorities act as a point of contact in the Member States. ESMA keeps a list of these authorities up-to-date. These authorities are required to cooperate closely with ESMA.

Member States and ESMA may conclude cooperation agreements concerning:

  • the supervision of credit institutions;
  • the procedures of liquidation and bankruptcy of firms;
  • the procedures for statutory audits of the accounts of investment firms;
  • the supervision of bodies involved in the procedures of liquidation and bankruptcy of investment firms;
  • the supervision of persons charged with carrying out statutory audits of the accounts of insurance undertakings, credit institutions, investment firms and other financial institutions.

Final provisions

The Directive is designed to improve the Community rules on securities markets. It therefore sets out the general obligations which Member State authorities must enforce.

Implementing measures, reports and reviews will be adopted by the Commission following consultations with market participants from the Member States and taking into account the opinion of the Committee of European Securities Regulators.



Entry into force

Deadline for transposition in the Member States

Official Journal

Directive 2004/39/EC



OJ L 145, 30.4.2004

Amending act(s)

Entry into force

Deadline for transposition in the Member States

Official Journal

Directive 2006/31/EC



OJ L 114, 27.4.2006

Directive 2007/44/EC



OJ L 247, 21.9.2007

Directive 2008/10/EC



OJ L 76, 19.3.2008

Directive 2010/78/EU



OJ L 331, 15.12.2010

Directive 2014/65/EU



OJ L 173, 12.6.2014

Successive amendments and corrections to Directive 2004/39/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.


Directive 2011/61/EU of the European Parliament and of the Council on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 [Official Journal L 174 of 1.7.2011].

Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive [Official Journal L 241 of 2.9.2006].

The purpose of this Directive is to establish a harmonised framework of organisational requirements and operating conditions for investment firms.

Last updated: 30.07.2014