As US Asset Managers typically do business within the EU, it would be essential that they meet the requirements of their clients so that they can continue to do business with them when MiFID II comes into force.

On January 3, 2018, the European Union’s (EU) updated Markets in Financial Instruments Directive (MiFID) II is to go live. MiFID seeks to make financial markets in Europe more resilient, transparent and investor-friendly.1 This is an attempt by the EU to create a single rulebook covering financial market activities and services and replaces the decade old MiFID I. MiFID II incorporates the commitment made by G20 leaders to move derivatives trading to electronic platforms, with more robust requirements for market probity and investor protection.2 While European regulators do not have direct influence on firms domiciled outside the EU, the nature of global financial markets means that the new rules should put indirect pressure on non-EU domiciled firms, among them, US Asset Managers. There are approximately 11 areas of change which financial firms are required to deal with, from transparency in reporting, to demonstrating best execution, to archiving communications, in addition to the unbundling of research, the trading mandate for derivatives, and surveillance.3 As US Asset Managers typically do business within the EU, it would be essential that they meet the requirements of their clients so that they can continue to do business with them when MiFID II comes into force.


On October 20, 2011, the European Commission adopted a legislative proposal for the revision of MiFID which took the form of a revised Directive and a new Regulation.4 Based upon existing rules, this new series of rules are structured  to leverage developments in the trading environment since the 2007 implementation of MiFID, and, in light of the financial crisis, to improve the functioning of financial markets, with a focus on making them more efficient, resilient and transparent.5 The MiFID II regulatory requirements can be categorized into two main areas, Markets’ Structure and Investor Protection:

1.     Markets’ Structure6

There are a number of mandatory regulatory requirements and Regulatory Technical Standards (RTS) under MiFID II, and these should change the way Europe’s secondary markets function.

  • Organized Trading Facilities (OTF):  Introduction of OTF’s for non-equity instruments, and prohibition to deal on own account when managing an OTF.
  • Systemic Internalisers: A firm that executes orders against clients from its own book will be treated by MiFID II as a mini exchange and so subject to pre- and post-trade transparency requirements.
  • Electronic Trading Systems: Obligation to have in place effective systems and risk controls for trading systems based on algorithmic and high frequency trading activities.
  • Pre- and Post-Trade Transparency: Requirement that operators of order matching systems must make order information, best bids and offers information available. Post-trade, the price volume and time of all trades must be published, even if executed outside of a regulated market.
  • Transaction Reporting: Increased amount of data to be reported accurately, extended to new categories of financial instruments, e.g. FX (Forex) and Commodities.
  • Derivatives and Portfolio Compression: Obligation to trade some categories of OTC (over-the-counter) derivatives on electronic trading venues, and an extension of the transparency requirements for those derivatives. There will be position limits introduced for commodity derivatives.
  • Best Execution: Firms to take all reasonable steps to obtain the best possible result in the execution of an order for a client, not limited to price, but including cost, speed and likelihood of execution and settlement.

2.     Investor Protection7

The MiFID II requirements aim to strengthen oversight of products and services provided to a global client base.

  • Research Unbundling: Firms will be required to unbundle trading commission from the provision of research. This will require investment managers to pay for research out of pocket or via an identifiable charge to clients.
  • Suitability Appropriateness: Requirement to gather additional information related to client risk tolerance when recommending services and products.
  • Profiling of Clients and Disclosure: Rules for classifying clients as eligible counterparties, professional clients or retail clients, and procedures to be in place to assess their suitability for each type of investment product.
  • Renumeration and Conflicts of Interest: Definition, approval and control of a renumeration policy aimed at avoiding conflicts of interest with clients. Also covered are procedures to avoid conflicts of interest when providing research and underwriting services.
  • Record Keeping: Broad spectrum of information to be recorded and stored, including new rules concerning telephone conversations and other electronic communications.
  • Safeguard of Client Assets: Requirements regarding the safeguarding of client assets, providing adequate guarantees on the deposit of client funds.

What This Means

Although MiFID II initially impacts firms based in Europe, US based Asset Managers competing for mandates against European investment firms could face competitive pressure to adhere to MiFID II rules. The regulation is most relevant to global asset managers that are based in the US, but have a physical location in Europe where they serve European clients, said Tom Conigliaro, managing director at Markit Brokerage and Research Services.8 While global firms can continue to operate their US divisions under existing US rules, “operating a global business under two starkly different regulatory regimes is very challenging,” says Conigliaro.9

From the point of view of transaction and trade reporting, as well as research unbundling and client accountability, US asset managers should be impacted on a number of different levels. For example, unless the EU regulators recognize the US as a MiFID equivalent market, a EU-based client can only trade in stocks with international securities identification numbers (ISINs) on an EU trading venue. EU-based customers will not be able to send such orders to a US Asset Manager for execution.10 Additionally, when a EU firm invests in a US Asset Manager, MiFID II’s investor protection and best execution rules should lead the EU firm to monitor the quality of execution of the US manager, which would mandate that manager to have an order execution policy describing how it takes the European Securities and Markets Authority’s “all sufficient steps” to obtain the best possible results for its clients.11

The MiFID II regulations splitting research and execution costs also have major implications for US Asset Managers. It should force fund managers in Europe to either pay for research themselves, or pass on that cost to clients in separate accounts. The rules are aimed at bringing greater transparency to the costs of trading. US Asset Managers that do business in the UK and the rest of the EU are importing these rules to the domestic market, as implementing two separate processes for the US and Europe would pose an immense administrative burden and cost.12

So, in conclusion, while US Asset Managers that do not have a physical presence in the EU are not in the “bullseye” of the regulation, practically speaking, all US Asset Managers with European mandates, or competing for European assets face competitive pressure as clients come to expect the same level of transparency as they are to receive from European asset managers. “Most global firms are going to opt into MiFID II across the globe,”13 said Conigliaro. Global asset managers should elect to adhere to the MiFID II regulatory standard in order to operate synergistically across the globe.14



  1. “MiFID II, Time to Prepare,” Bloomberg Reports, April/May 2017. Access at:
  2. Ibid
  3. Ibid
  4. “MIFID (II) AND MIFIR,” European Securities and Markets Authority. Access at:
  5.  Ibid
  6. “Markets in Financial Instruments Directive 2004,” Wikipedia. Access at: “Regulatory technical and implementing standards – Annex I, MiFID II / MiFIR,” European Securities and Markets Authority, September 28, 2015. Access at:
  7. “Markets in Financial Instruments Directive 2004,” Wikipedia. Access at: “MiFID II / MiFIR series,” Norton Rose Fulbright, May 2015. Access at:
  8. “MiFID II Regulations to Impact U.S. Asset Managers,” Flextrade, March 14, 2017. Access at:
  9. Ibid
  10. “MiFID II, Time to Prepare,” Bloomberg Reports, April/May 2017. Access at:
  11. “MiFID II, Time to Prepare,” Bloomberg Reports, April/May 2017. Access at: “MIFID (II) AND MIFIR,” European Securities and Markets Authority. Access at:
  12. “US asset managers import European research rules,” Financial News, March 14, 2017. Access at:
  13. “MiFID II Regulations to Impact U.S. Asset Managers,” Flextrade, March 14, 2017. Access at:
  14. Ibid

Newsletter Author: Samantha Regan, Mairi Bryan

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