THE name may be unfamiliar—and comical—to most, but the first Markets in Financial Instruments Directive (MiFID) revolutionised share-trading in the European Union, by allowing new competitors to take on dear and dozy national stock exchanges. Earlier this month the European Parliament approved MiFID 2, an even more ambitious law, which aims to change how trillions of euros-worth of stocks and bonds, derivatives and commodities are traded, cleared and reported. The consequences are likely to be as sweeping and unpredictable as those of its predecessor.
MiFID 1, approved in 2004 and implemented in 2007, spawned a host of “multilateral trading facilities” (MTFs), electronic platforms for buying and selling shares. These, in turn, attracted outfits such as hedge funds hoping to profit from short-term market movements, which helped to moderate falling turnover and hone prices. Between a third and half of trading in the shares of Europe’s biggest companies now takes place off the old exchanges. Spreads have narrowed and fees have fallen.