MiFID II

Investment firms must take all sufficient steps to obtain the most favorable result for clients when executing orders. This obligation evaluates price, costs, speed, likelihood of execution and settlement, size, and nature of the order. Firms must publish their top five execution venues annually and demonstrate a clear execution policy that is monitored and reviewed. Unlike the US Regulation NMS focus on price alone, MiFID II requires a multi-factor assessment that considers the characteristics of the client, the order, and available venues.

Trading venues must make public current bid and offer prices and the depth of trading interest at those prices. This applies to shares, depositary receipts, ETFs, and certain derivatives. The regime mandates continuous disclosure during normal trading hours with specific waivers available:

• Large-in-scale waiver: Orders above a calibrated size threshold
• Reference price waiver: Systems pegging to a primary market midpoint
• Negotiated trade waiver: Formal bilateral arrangements

Trading venues and systematic internalisers must publish the price, volume, and time of executed transactions as close to real-time as technically possible. For equity instruments, this is within one minute of execution. Deferred publication is permitted for large transactions above minimum qualifying sizes, with maximum deferral periods calibrated by asset class and trade size. The goal is to provide market participants with a complete view of executed liquidity while protecting positions in illiquid instruments.

Investment firms must report complete and accurate details of all transactions in financial instruments to their National Competent Authority (NCA) by the end of the following working day. Reports include:

• Buyer and seller identification using Legal Entity Identifiers (LEIs)
• Instrument identifiers via ISIN codes
• Trading venue and timestamp with microsecond granularity
• Short selling flags and client designation codes This creates a comprehensive audit trail enabling regulators to detect market abuse and monitor systemic risk.

A Systematic Internaliser is an investment firm that deals on own account by executing client orders outside a regulated market or MTF on an organised, frequent, systematic, and substantial basis. SIs must:

• Publish firm two-way quotes for liquid instruments
• Execute client orders at the quoted price up to a standard market size
• Adhere to pre-trade and post-trade transparency obligations Quantitative thresholds define SI status based on OTC trading activity relative to total market volume.

Certain standardised OTC derivatives must be traded on regulated markets, multilateral trading facilities (MTFs), or organised trading facilities (OTFs). This trading obligation applies to classes of derivatives that:

• Are subject to the clearing obligation under EMIR
• Are sufficiently liquid and admitted to trading on at least one eligible venue This requirement mirrors the US Dodd-Frank swap execution facility mandate and aims to move bilateral OTC trading onto transparent, regulated platforms.

The core regulatory mandate under MiFID II requiring investment firms to take all sufficient steps to obtain the most favorable result for clients. Execution quality is assessed across multiple factors:

• Price: Total consideration, including all explicit costs.
• Speed: Latency of execution, critical for volatile instruments.
• Likelihood of Execution: Access to dark and lit liquidity.
• Settlement: Certainty of clearing and custody. Firms must publish their top five execution venues annually and demonstrate a robust execution policy that is reviewed at least yearly.

The quantitative discipline required to prove best execution. TCA decomposes the implementation shortfall into its constituent parts:

• Explicit Costs: Commissions, taxes, and exchange fees.
• Market Impact: The adverse price movement caused by the trade itself.
• Delay Costs: Slippage between the arrival price and the first execution.
• Opportunity Cost: The cost of unexecuted shares. MiFID II mandates that firms integrate TCA into their execution policy review, using benchmarks like VWAP and Arrival Price to demonstrate continuous improvement.

A new category of liquidity provider formalized by MiFID II. An SI is an investment firm that deals on its own account by executing client orders outside a regulated market or MTF on an organized, frequent, and systematic basis. SIs are subject to:

• Pre-trade transparency: Must publish firm quotes for liquid instruments.
• Quote volume obligations: Must quote up to standard market size.
• Access rules: Must execute client orders at the quoted price. The SI regime captures broker crossing networks that previously operated as dark pools, forcing them into the lit market framework.

A MiFID II-authorized entity that provides the service of publishing post-trade transparency reports on behalf of investment firms. Every trade must be reported as close to real-time as technically possible, including:

• Instrument identifier (ISIN).
• Price and quantity.
• Venue and timestamp.
• Trading flag (e.g., non-addressable liquidity). APAs act as a consolidated tape mechanism, aggregating trade data from OTC transactions and SI executions to provide the market with a complete picture of trading activity.

A 20-character, alpha-numeric code based on the ISO 17442 standard that uniquely identifies legal entities participating in financial transactions. Under MiFID II, no investment firm can execute a trade for a client that is eligible for an LEI but does not have one. The LEI connects to a reference database containing:

• Direct and ultimate parent ownership structures.
• Entity legal form and registered address.
• Relationship records for branch operations. This enables regulators to aggregate transaction reports by entity and reconstruct systemic risk exposures across the entire market.