Non-EU firms

MiFID II is a package of European legislation. Its scope is very broad and many of the new requirements have an impact on non-EU firms (known as “third country firms”) that carry on business within the EU or with EU counterparties, even when they themselves are located outside of the Union.

This page is intended to offer a snapshot of the key MiFID II issues which are relevant to non-European entities trading in the EU and/or which provide services to EU based clients.

Providing services into the EU

If you have clients that are based in the EU, MiFID II may impact on the way in which you are able to continue providing services to them. The obligations that apply to you will depend on a number of variable factors including the type of services you are providing, the Member State in which the services are provided and the level of sophistication of your client.

Regulated and sophisticated clients

If you provide services to regulated firms, public bodies or large companies (all referred to in MiFID II as either an “eligible counterparty” or a “per se professional client”) then you will be able to continue providing such services by one of two routes:

(1) Equivalence

Where the European Commission recognises your home jurisdiction as having equivalent legal and supervisory arrangements to those in place in the EU, then you may be deemed “equivalent” and granted permission to provide services to per se professional clients and eligible counterparties throughout the EU.

(2) Individual jurisdiction compliance

Where an equivalence decision is not in place in relation to your jurisdiction, it will still be possible to continue providing services to EU clients, which are designated as either per se professional and/or eligible counterparty provided you comply with the relevant regulatory obligations in place in each jurisdiction in which your clients are based.

Non-regulated and non-sophisticated clients

For EU clients that cannot be classified as “per se professional” or “eligible counterparty”, it will only be possible to continue providing services to them where you comply with the regulatory requirements in force in the jurisdiction in which that client is located. In certain Members States this may include the requirement to establish a branch.

The UK proposes to maintain its current regulatory framework surrounding the performance of regulated activities in the UK by non-EU regulated firms and, as such, providing regulated services to UK based elective professional and retail clients will be subject to the same requirements as they are today.

Position limits and position reporting

All entities trading commodity derivatives on an EU venue will be subject to the rules relating to “position limits”. MiFID introduces limits on the maximum size of a net position that entities and groups can take in commodity derivatives traded on an EEA trading venue and in OTC contracts deemed to be “equivalent economically”. In case of a breach of the prescribed limit, the regulator will contact the position holder directly to ensure that it reduces its position.

Details of your own, and of clients, on-exchange positions must be provided on a daily basis to the venue on which such instruments are traded. The venue will then submit these to their regulator. Where you trade in OTC contracts which are deemed to be “economically equivalent” to those traded on exchange, then details of these positions will need to be submitted directly to the regulator.

The LME’s Lending Rules and Position Management will continue to apply and will complement the requirements of the MiFID II position limit regime.

Reporting and order record keeping requirements

Members of EU trading venues will be subject to a variety of enhanced reporting and order record keeping obligations under MiFID II, which are intended to give regulators greater opportunity to monitor the financial markets and investigate cases of suspected market abuse.

The new requirements will increase the volume and level of detail of the information that members and clients are required to provide for transaction reporting purposes. The key areas of impact are set out below:

Legal Entity Identifier (LEI)

An LEI is a globally unique code used to identify individual legal entities. All allocated LEIs are included in a global data system, which allows the relevant entity to be identified irrespective of the jurisdiction in which it is located.

All entities trading on an EU venue will be required to have an LEI. Members which are subject to the MiFID II reporting and order record keeping obligations will not be able to execute a trade on behalf of a client that is eligible for an LEI but does not have one. Trading venues are required to submit transaction reports on behalf of non-regulated member firms. Therefore, the requirement to have an LEI will apply irrespective of your regulated status and (where applicable) the regulated status of a member through which you trade.

Personal details of the “investment decision maker”

MiFID II requires that the individual(s) responsible for making investment decisions are readily identifiable by regulators. Therefore, you will need to provide to either a member firm or the trading venues directly, the personal details of certain front office staff members, including their first name, surname, date of birth and passport/National ID numbers. Where an investment decision has been made by an algorithm, details of the algorithm will be required instead.

The European Regulator has noted that the provision of this information may conflict with data protection laws in non-EU jurisdictions. However, it makes clear that any such conflict would not obviate the need to provide this information. You should consider carefully whether the privacy laws in your jurisdiction impact your ability to provide the required information to EU firms.

Direct Electronic Access (DEA)

Non-EU members of a trading venue that provide DEA will be subject to additional MiFID II related requirements, which are required to be embedded in the venue's rules. These will govern the types of clients to which DEA can be provided and certain safeguards relates to any algorithmic trading that may take place through the access the relevant firm provides.

If you provide your clients with DEA to an EU venue, then you will need to review your client due diligence and risk management procedures. If you receive DEA through a member, then the terms on which this is provided may change. You may also be required to provide additional details to the relevant member firm concerning your corporate structure and expected trading pattern on the venue to which they provide access.

Mandatory trading

MiFID II introduces a regime for the mandatory on-exchange trading of derivative instruments as they may require. The obligations would prevent all firms, including non-EU entities, from trading the relevant derivative OTC within the EU. There is no expectation that metal derivatives would be immediately subject to these requirements.

Contact us

For further information about MiFID II implementation, please email our MiFID II team.

For all other regulatory change related questions, please email the Head of Regulation, Risk and Compliance.