Mifid 2 Summary

[Argelia Long]

Afinal revised Markets in Financial Instruments Directive and Regulation (MiFID II) was published in the EU Official Journal on the 12th June 2014. MiFID II represents two major changes compared to MiFID I:

In the attached appendix Nordea has included information on how MiFID II affects our working relationship and what you as a customer of Nordea Markets need to do to be prepared for MiFID II. You should review this information carefully and provide the necessary documentation to Nordea.

Nordea will act as a Systematic Internaliser (SI) for Nordic equities and for foreign exchange, interest rate derivatives and cash bond instruments traded on a trading venue from January 3, 2018. As an SI, Nordea will take the legal post-trade reporting burden from our institutional customers. This is in addition to our obligation to perform post-trade reporting when transacting with our non-institutional customers. As a customer to Nordea there is no need to develop any process or system for post-trade reporting as we will assume this responsibility for all instruments traded on a trading venue.

If you have any questions in regard to MiFID II or its impact on our working relationship, please do not hesitate to contact your Nordea representative or email us at marketsmifidII [at] nordea.com (subject: Question%20about%20Mifid%20II%20from%20Nordeamarkets.com) (MiFIDII Questions)

Legal Entity Identifiers (LEIs) are mandatory for execution of MiFID products beginning 3 January 2018. If you do not have a LEI code, you will not be able to trade with us. More information on how to obtain an LEI code can be found here. If you already have a LEI code please submit your LEI code to LEI [at] nordea.com (LEI[at]nordea[dot]com).

Please note that the requirement to have an identifier also applies to individuals that conduct the trade or make investment decisions at your company. The identifier for individuals is based on citizenship so you will be asked about your citizenship when trading with us.

The new transaction reporting regulations introduces a requirement on firms to indicate where a transaction is a short sale. This is relevant for trades in sovereign debt and shares admitted to trading on a trading venue. In these products you need to disclose to Nordea whether you are selling short.

MiFID II requires investment firms trading in commodity derivatives to provide to the relevant competent authority a complete breakdown of their positions as well as those of their customers. Position holders are to be identified in the same way as for transaction reporting purposes. Legal persons are identified by their LEI.

MiFID II will change our working relationship and as a consequence we have updated the following agreements and documentation. You should carefully review all the information that is relevant for your business with Nordea.

We want to ensure that your company has all the necessary information available when making trading decisions. Before you enter into a transaction with us, we will give you a description of the features of the product and its related risks. We may ask you more questions than before to evaluate suitability, meaning that we want to ensure that a particular product is suitable to your needs.

You will be given more detailed information on the costs you incur when you deal with us. What this means in practice is, for instance, that we will send you an annual report detailing all the costs you have paid, in euros and as a percentage of your transactions with us. We will also always inform you of the costs involved when conducting any transaction and costs will be itemised in more detail than at present.

The information provided within this website is intended for background information only. The views and other information provided herein are the current views of Nordea Markets as of the date of publication and are subject to change without notice. The information provided within this website is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient.

The information provided within this website is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information provided within this website has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results.

Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction.

The information provided within this website may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets.

Subject to certain exemptions (discussed below), firms wishing to engage in any of the MiCA-specified services and activities in relation to crypto-assets (referred to collectively in MiCA as "crypto-asset services") must obtain prior authorisation from the relevant regulator. These "crypto-asset services", most of which bear strong similarities to investment services and activities under MiFID II, are:

By comparison, the United Kingdom has proposed that "issuing, creating or destroying", "providing custody and admin[istration] for a third party", "executing transactions" and "exchanging", relating to certain stablecoins (termed, for now, "payment cryptoassets") should be made subject to an authorisation regime. These activities seem similar to some of the MiCA crypto-asset services above but they relate only to "payment cryptoassets" (essentially, stablecoins that are used widely as a means of payment). So their scope (if implemented as proposed in consultation) would be narrower than MiCA.

Further, the United Kingdom has proposed certain "controlled activities" relating to certain "qualifying cryptoassets" for the purposes of the UK financial promotion regime, which are in summary: "dealing", "arranging deals", "managing", and "advising". Again, these proposed controlled activities would resemble certain of the MiCA crypto-asset services above. However, unlike under MiCA, these proposed controlled activities would not trigger any authorisation requirements; they would only be used to assess whether the UK financial promotion restriction applies to a promotional communication.

Subject to certain exclusions and exemptions (discussed below), any person that provides any of the above specified crypto-asset services "within the Union" must be authorised under MiCA. What amounts to "within the Union" will largely depend on the interpretation of the relevant EU member state and so, for third country (i.e. non-EU) firms whose businesses have EU elements, they may need to seek local advice as regards MiCA's territorial scope with respect to each relevant EU member state.

Firms wishing to obtain authorisation under MiCA must have a registered office, or place of effective management, in the European Union, and have at least one director based in the European Union. There are other conditions to authorisation such as capital requirements, and governance requirements etc. Once authorised in its home member state2, the crypto-asset service provider may passport its services throughout the European Union, either via a physical branch or on a cross-border basis, without having to obtain separate authorisations in the other EU member states (known as the "host" member states).

The Parliament, in its negotiation version, proposed some more stringent authorisation eligibility conditions (similar to its proposal for asset-referenced crypto-asset issuer authorisation; see Part 2): e.g. the applicant must not have a parent or subsidiary in a high risk country as identified under MLD. The Compromise Text does not take these on. However, the Compromise Text does add new provisions not included in any of the three negotiation versions (apparently to address these Parliament concerns): where an applicant has offices in, or relies on third parties based in, a high-risk country identified under MLD, the home regulator must, before granting authorisation, ensure that the applicant complies with the relevant MLD provisions relating to such high-risk countries as implemented in the home member state; the relevant regulator may also refuse authorisation if the applicant has close links in a third country (i.e. non-EU) whose laws would prevent or materially affect the effective supervision of the applicant.

The relevant regulator can withdraw a firm's authorisation in certain circumstances which go beyond those for an investment firm under MiFID II. For example, a crypto-asset service provider may lose its authorisation if has not provided crypto-asset services for nine successive months throughout its life or fails to put in place effective anti-money laundering and counter-terrorist financing systems and procedures.

If a firm based outside the European Union provides the relevant crypto-asset services at the "own exclusive initiative" of a customer residing within the European Union, the firm does not have to obtain authorisation under MiCA. This exclusion is similar to corresponding provisions under MiFID II, and the scenario is often referred to as "reverse solicitation".

The exclusion was not in the Commission's initial proposal but was added by the Parliament and Council, and retained in the Compromise Text. "Exclusive initiative" generally means there must be no solicitation on the part of the non-EU service provider which also cannot market new or different products not requested by the customer. The European Securities and Markets Authority (ESMA) is given power to prepare guidelines on when non-EU service providers are deemed to have solicited EU customers for these purposes. ESMA typically interprets MiFID II reverse solicitation narrowly. So it would not be surprising if ESMA took a similar position with the MiCA reverse solicitation provisions.

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