June 2016

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The European Securities and Markets Authority (ESMA) has been making significant changes in how markets in the European Union work since before the Global Financial Crisis. Several competing and longstanding objectives have been to harmonize the region’s markets, increase global competitiveness and continue to reduce the risks of another 2008.

Recent regulation has included the second Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR). These rules cover the conduct of investment firms, authorization requirements for regulated markets, reporting, trade transparency and what financial instruments are eligible for trading. While some parts of the regulation codify existing market practices, others create wide-ranging new obligations for market participants.

Securities finance is caught up in this net of regulation. While financing has few direct references in MiFID II and MiFIR, the indirect references are far, wide, and much more important. These regulations are focused on business conduct at investment firms. As these Acts capture a broad range of activity, securities finance market participants may well find that they need to rethink some parts of their business models entirely.

This Finadium report presents a summary and analysis for securities finance market participants looking to understand the business implications of MiFID II and MiFIR. We look at both direct and indirect impacts and analyze potential pitfalls as firms work to comply with the new rules. This report should be read by any bank, broker, asset manager, pension or hedge fund engaged in securities lending, repo or collateralized trading activity.

This report is 34 pages with 1 exhibit.


■ Executive Summary

■ The Objectives of MiFID II and MiFIR
– Methodology

■ Provisions that Directly Reference Securities Finance
– Market Intervention

■ General Provisions Impacting Securities Finance
– Organisational Structure and Governance Policies
– Conflicts of Interest
– Best Execution
– Client Order Handling
– Advice, Research and Client Education

■ The Challenge of Compliance

■ About the Author

■ About Finadium


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