MiFID II Series: Frequently Asked Questions: Investment Firms -- Part 1

Question: Has the term investment firm expanded under MiFID II as compared to MiFID? If so, what is covered by the term today?

The term ‘Investment Firm’ is in principle the same as in MiFID I with the exception of the operation of OTF platforms that will constitute a licensed operation. This means that companies that have operated such business without a license will have to become an investment firm. In addition a number of companies that have not had licenses will no longer be able to exercise waivers within MiFID I meaning that the following will have to apply for a license to become an investment firm: 1) companies that engage in their own account trading but are members of a regulated market or an MTF platform or have electronic access to a trading venue, make use of algorithmic high frequency trading, or trade in their own account at the execution of client orders and 2) such companies that trade in their own account with commodity derivatives, emission rights or derivatives of emission rights.

Question:The ‘new’ investment firms according to the MiFID II definition – do they have to apply for some kind of authorization at the national FSA? Is there some kind of transition period for this?

They have to apply to NFSAs. There is no transitional period and the license needs to be in place on 3 January 2018. This means that current trading is significant for determining whether they are below / above the thresholds for each asset class. We will most likely have in our rules an annual requirement for the members to confirm their regulatory status. They also need to confirm to the NFSA annually.

Question: In RTS 7 art 7 § 3 regarding due diligence of members it is stated that Trading Venues are required to annually ‘’check whether members remain registered as investment firms’’. Is there a requirement to be an investment firm in order to be a participant of a trading venue under MiFID II? Is it sufficient for a Trading Venue to have an annual self-certification from members?

There is no general implied requirement that the member is an investment firm. A regulated market may accept investment firms, credit institutions authorized and other persons who have sufficient good reputation, a sufficient level of trading ability, adequate organizational arrangements and sufficient resources as members. Analyzing the language of the RTS it is evident that the status would need to be checked annually. A suitable option (awaiting further guidance from the relevant authorities) would be to require members to annually confirm their status and to provide excerpts from public registers showing relevant authorizations.

For additional information on MiFID II, please visit Nasdaq's MiFID II web section here >

DISCLAIMER:All information contained herein is obtained by Nasdaq from sources believed to be accurate and reliable. However, the Markets in Financial Instruments Directive and Regulation and related level 2 and level 3 texts (“MiFID II/R”) have not yet been fully adopted and/or implemented. Neither Nasdaq Nordic Exchanges nor any of its affiliates or subsidiaries (collectively “Nasdaq”) assumes any responsibility for any errors or omission contained herein. The information herein is not intended to provide legal advice on any matter, nor is it intended to be comprehensive. All information is provided “as is” without warranty of any kind. While the information has been prepared on the basis of the best information available, Nasdaq accepts no liability for decisions taken by any party, based on this information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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