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HMRC internal manual

Stamp Taxes on Shares Manual

Financial markets: background: Markets in Financial Instruments Directive (MiFID): key aspects of MiFID

The key aspects of the Markets in Financial Instruments Directive (MiFID) that apply to firms regulated by the Directive are:

Authorisation, regulation and passporting

Firms are authorised and regulated in their “home state”. Once a firm has been authorised, it can provide services to customers in other EU Member States. These services will be regulated by the firm’s home state (whereas previously it regulated by the Member State in which the service takes place).

Client categorisation

A requirement for firms to categorise clients as “eligible counterparties”, professional clients or retail clients (these have increasing levels of protection). Clear procedures must be in place to categorise clients and assess their suitability for each type of investment product. “Eligible counterparties” include investment firms, insurance companies, banks etc.

Client order handling

Requirements relating to the information that needs to be captured when accepting client orders, to ensure that a firm is acting in a client’s best interests, and as to how orders from different clients may be aggregated.

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Pre and post-trade transparency

A requirement for firms to publish information on what price investors can buy and sell shares at (pre-trade) and what price they have been sold and bought for (post-trade).

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Best execution

Firms must take all reasonable steps to obtain the best possible result in the execution of an order for a client. The best possible result is not limited to execution price but also includes cost, speed, likelihood of execution and likelihood of settlement and any other factors deemed relevant.

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Systematic Internaliser

A Systematic Internaliser is a firm that executes orders from its clients against its own book or against orders from other clients. MiFID treats Systematic Internalisers as mini-exchanges and they are therefore subject to the same rules as exchanges, for example, they will be subject to pre-trade and post-trade transparency requirements.