Markets in Financial Instruments Directive (MIFID) Classification 

Markets in Financial Instruments Directive (MIFID) Classification 

Markets in Financial Instruments Directive (MIFID) is a set of regulation which dictates how business is conducted within the Investment Market. Its purpose is to protect investors, by ensuring that there is transparency within the European financial markets by enforcing a regulatory standard that is required in order for business to be conducted within the markets.  

 

Categorisation 

As expected within the investment market there are different players with varying levels of knowledge, skill and expertise, the MiFID is able to ensure the security and protection of these clients whilst conducting business, by categorising them into three groups (2 main and one sub category) and tailoring the regulation to accommodate the expertise of each group.

Retail Clients: Which represent a group of investors who are less experienced in trading within the markets, and as a result would require an increased level of security and protection. 

Professional Client: Which refers to a group of investors who are experienced and knowledgeable in the market. This increased knowledge means that they are able to independently and effectively assess risks involved in investments decision, therefore would require less protection and security. 

Counterpart Bodies: These investors are considered to be the most sophisticated, and include companies such as investment firms, insurance companies and credit companies.

 

What makes a Professional Client?

In order to be considered a professional client within the market, certain specification must be evaluated. 

  • Does the client need to be authorised or regulated? 
  • How large are the Undertakings?  
  • Is its main objective to invest in other financial institutions and entities? 

Clients who don’t fall under any of these specifications are considered retail clients.

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