What is MiFID?
How does MiFID relate to FXMarketSpace?
MiFID and Reg NMS
What is MiFID?
The Markets in Financial Instruments Directive (MiFID) aims to introduce a single market and
regulatory regime for investment services across the 30 member states of the European Economic
Area. The directive was implemented on 1 November, 2007. All companies trading in
financial services and businesses that deal in advisory services will be affected by the directive,
and must comply with its requirements for best execution and pre- and post-trade transparency.
How does MiFID relate to FXMarketSpace?
MiFID does not affect the spot FX market directly, but it does impact investment firms
trading in every asset class to make the best use of the FX market when making a trade that
involves a currency exchange. As such, it is likely that trading organisations will adopt just one
MiFID compliant strategy for all of their trading.
FXMarketSpace is targeted to meet the growing FX needs of banks and other financial
institutions by providing increased price transparency, complete trading anonymity, and guaranteed
settlement by CME Clearing.
Execution factors relating to Best Execution -
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Size, nature and characteristic of the order – Customers using FXMarketSpace can
see top of book prices and 5 prices deep, allowing larger sizes to be traded.
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Likelihood and speed of execution - With no last look, more trades are completed
on FXMarketSpace. The trade matching engine publishes every market price without imposing any
artificial latency (throttling), and allowing customers to transact multiple trades per second.
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Price and cost of execution - Both buy- and sell-side institutions trade on
FXMarketSpace and have equal access to all prices. The cost of execution is also reduced by
including the credit efficiencies offered by a central counterparty, reducing the need for
bilateral credit and allowing for cross-margining of other products traded on CME.
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Anonymity - This is particularly important for trades larger than market standard.
FXMarketSpace provides total anonymity as every trade is dealt with CME as the central
counterparty.
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Guaranteed Settlement - Once trades are matched, CME Clearing becomes responsible
for guaranteeing settlement and has over $4 billion in financial safeguards to protect clearing
members in the case of default.
MiFID and Reg NMS
The Regulation National Market System (Reg NMS) was adopted by the Securities and Exchange
Commission (SEC) in the spring of 2005. There are several changes that Reg NMS has on the laws
governing the US securities markets, but the four most important are theOrder Protection Rule
(611); the Market Access Rule (610); the Sub-Penny Rule (612); and the amendments to the Market
Data Rules (601 and 603).
> Order Protection Rule
The Order Protection Rule aims to create a level playing field for all investors by providing
equal access to prices and mandating that trades be executed at the best price.
> Market Access Rule
The Access Rule has been proposed to prevent markets from executing orders at a price that is
inferior to one displayed by another marketplace.
> Sub-Penny Rule
The Sub-Penny Pricing Rule aims to prevent hedge funds and other active traders from gaining
execution priority by improving the price of another limit order by an economically insignificant
amount.
> Market Data Rules
The amendments to the Market Data Rules update the formula for allocating revenues generated
by market data fees to self-regulatory organizations (SROs) that produce the data for investors.
The new formula allocates revenues to those market centers that generate quotes with the best
prices and largest orders.
Reg NMS and MiFID both represent major changes in the structure of the markets for trading in
the U.S. and European Union (EU) respectively. While MiFID attempts to create more unified European
markets, Reg NMS is more targeted and seeks to address specific shortcomings in the existing
structure of the U.S. markets.
However, the core goals of the European Commission and the SEC are the same: to create more
efficient, transparent and fair markets for investors.
