EU · MiFID II · TITLE I SCOPE AND DEFINITIONS
Article 4 MiFID IIDefinitions
Defines the core MiFID II terms, including investment firm, investment services and ancillary services, investment advice, dealing on own account, market maker, portfolio management, professional and retail client, SME growth market, financial instrument (including those issued using distributed ledger technology), regulated market, MTF, OTF, trading venue, systematic internaliser (now limited to equity instruments, with an opt-in), liquid market, tied agent, algorithmic and high-frequency trading, and direct electronic access.
Amendments and application dates
| Amending act | Change | Applies from |
|---|---|---|
| Directive (EU) 2019/2177 | Text amended; Text deleted | by 1 Jan 2022 |
| Directive (EU) 2021/338 | Text amended; Text inserted | by 28 Feb 2022 |
| Regulation (EU) No 909/2014 | Text inserted | by 1 Jan 2023 |
| Regulation (EU) 2022/858 | Text amended | by 23 Mar 2023 |
| Directive (EU) 2024/790 | Text amended | 29 Sept 2025 |
| Directive (EU) 2024/2811 | Text amended | 6 Jun 2026 |
Level 2: delegated and implementing acts
- Delegated actIn forceLegal basis
AI summaryAmends Delegated Regulation 2017/565 to make it easier for MTFs to register as SME growth markets: a non-equity issuer qualifies as an SME if its debt issuance in the previous calendar year did not exceed a nominal-value threshold, and SME growth market operators may decide whether to require half-yearly reports from non-equity issuers.
- Delegated actIn forceLegal basis
AI summaryAmends Delegated Regulation 2017/565 to clarify that an investment firm is not a systematic internaliser when it takes part in matching arrangements with entities outside its group that are designed to carry out de facto riskless back-to-back transactions outside a trading venue, preventing networks of linked SIs from functioning as multilateral systems.
- Delegated actIn forceLegal basis
AI summaryThe main MiFID II Delegated Regulation: defines key terms (such as investment advice, systematic internaliser, algorithmic and high-frequency trading, and direct electronic access) and sets detailed organisational requirements and operating conditions for investment firms, including compliance, conflicts of interest, remuneration, client information, suitability and appropriateness, best execution, client order handling, reporting to clients, record keeping and transaction-level obligations.
Level 3: ESMA Q&As, guidelines and opinions
- Q&AAnsweredESMA rulebook
AI summaryFor the systematic internaliser tests, a firm dealing on own account with a counterparty that is not a regulated financial institution is always executing a client order; when dealing with a financial institution it must decide which side is acting for a client, by transaction, transaction type or counterparty type, using indicators such as client classification and who initiated the trade.
- Q&ARejectedExplicit reference
AI summaryAsked whether a MiFID II investment firm can conduct its business as an investment activity rather than as the provision of an investment service. ESMA rejected the question, so there is no answer.
- Q&AAnsweredInferred · 80%
AI summaryFunctionalities that automatically manage orders after routing, for example redirecting unexecuted portions to other venues or slicing orders, are algorithmic trading (unlike simple order routers), so the orders must be flagged as such and the firm must meet Article 17 MiFID II and RTS 6.
- Q&AAnsweredInferred · 75%
AI summaryAn order sent through direct electronic access and executed on a venue is, for the DEA user, a single on-venue trade rather than an OTC trade with the DEA provider followed by an on-venue trade, subject to specific guidance such as on transaction reporting.
- Q&AAnsweredInferred · 80%
AI summaryMatched principal trading is incompatible with operating as a systematic internaliser unless occasional or done on a trading venue, since SIs must carry the risk of their trades (a fee or commission suggests they do not); any system that facilitates matched principal trades needs authorisation as a multilateral system.
- Q&AAnsweredInferred · 75%
AI summaryAsked at what level the systematic internaliser thresholds are calculated for derivatives, structured finance products, bonds and emission allowances. ESMA deleted the question on 10 October 2025.
- Q&AAnsweredInferred · 70%
AI summaryESMA treats securities financing transactions involving financial instruments as transactions in financial instruments here, so a system bringing together multiple third-party trading interests in such transactions must be authorised as a trading venue.
- Q&AAnsweredInferred · 70%
AI summaryAsked whether firms can become systematic internalisers under the mandatory regime in instruments not traded on a trading venue. ESMA deleted the question on 10 October 2025.
- Q&AAnsweredInferred · 85%
AI summaryA firm opting in to the systematic internaliser regime may choose the specific instruments, whether or not traded on a venue, for which it is an SI, including individual derivatives or emission allowances without opting in for the whole sub-class.
- Q&AAnsweredInferred · 80%ESMA_QA_1498: Multilateral and bilateral systems - Systematic internalisers - “risk-facing activity”
AI summaryAn EU branch of a third-country firm acting as a systematic internaliser must carry real risk on its own book: no riskless back-to-back hedging of each client trade, its own control of quotes with EU-based traders, a dedicated commercial policy and client documentation, and its own MIC for reporting.
- Q&AAnsweredInferred · 80%
AI summaryFor the high-frequency trading tests in Article 19 of Delegated Regulation 2017/565, firms calculate the message-rate indicator per instrument over its trading hours, sum the indicators across all relevant instruments on a venue for the second test, and apply them only to instruments ESMA lists as liquid at the time.
- Q&AAnsweredInferred · 70%
AI summaryAsked when ESMA would publish EU-wide trading volumes and when firms had to run their first and later systematic internaliser assessments. ESMA deleted the question on 10 October 2025.
- Q&AAnsweredInferred · 80%
AI summaryA trading venue may not arrange transactions on its systems that are then executed and reported on another venue, since a venue's defining feature is executing trades under its own rules; an investment firm operating a venue may, however, arrange trades as an authorised investment service.
- Q&AAnsweredInferred · 80%
AI summaryAn investment firm operating an OTF may arrange strategies that include an equity leg, but the equity (or look-alike equity) leg cannot be executed on the OTF, which may trade only non-equity instruments; the OTF reports only the legs concluded on its system.
- Q&AAnsweredInferred · 85%
AI summarySystematic internalisers must take real risk: beyond the ban on matched principal internal matching, they may not run any arrangement that brings together third-party interests like a trading venue so that they avoid risk-facing trades; ESMA lists criteria for when such arrangements require authorisation as a venue.
- Q&AAnsweredExplicit reference · 90%
AI summaryAn OTF operator owes best execution to brokers that are its clients and applies its own execution policy to their orders, while each broker must assess whether the OTF lets it meet its own best-execution duties to its clients; DEA orders are executed as orders of the broker, and the operator may refuse DEA altogether.
- Q&AAnsweredInferred · 80%
AI summaryAn OTF must offer trading in financial instruments (bonds, structured finance products, emission allowances or derivatives); it may additionally offer physically settled REMIT wholesale energy contracts, but genuine trading in financial instruments must take place and not be a pretext for trading almost only REMIT carve-out contracts.
- Q&AAnsweredExplicit reference · 90%
AI summaryAn OTF operator owes best execution to brokers that are its clients and applies its own execution policy to their orders, while each broker must check the OTF lets it meet its own best-execution duties; DEA orders are executed as orders of the broker, and the operator may refuse DEA.
- Q&AAnsweredInferred · 70%
AI summaryA system offering quote streaming and order execution with multiple systematic internalisers, letting clients request execution against several of them, is a multilateral system and must be authorised as a trading venue, even without aggregating quotes.
- Q&AAnsweredInferred · 85%
AI summaryAlgorithms that only alert human traders to trading opportunities are not algorithmic trading, provided the execution itself is not algorithmic.
- Q&AAnsweredInferred · 80%
AI summaryDEA users can be high-frequency traders if they meet the HFT definition and message thresholds; they may rely on data from their DEA provider to assess this, but remain responsible for checking that it reflects only their own proprietary trading in liquid instruments.
- Q&AAnsweredExplicit reference · 90%
AI summaryFor the DEA definition, 'exercise discretion regarding the exact fraction of a second' refers to the DEA user's control over when it sends an order, not when the order reaches the matching engine, given the delays added by mandatory filters and networks.
- Q&AAnsweredInferred · 85%
AI summaryAn entity must be authorised as an OTF where trading in non-equity instruments is multilateral, the arrangements have the characteristics of a system, and orders are executed on a discretionary basis through or under the system's rules; ESMA explains each condition and the two OTF system types in Article 20(6).
- Q&AAnsweredInferred · 80%
AI summaryMiFID II is technology neutral, so voice trading can be an OTF; an investment firm executing transactions by voice negotiation operates an OTF if its arrangements meet the criteria for a multilateral system.
- Q&AAnsweredInferred · 75%
AI summaryOTFs differ from MTFs in that they trade only non-equity instruments, allow the operator more matched principal and own-account activity (but not combined with an SI), require the operator to exercise discretion, and have clients rather than members, so client-facing rules such as best execution apply; physically settled REMIT energy products on an OTF are not financial instruments.
- Q&AAnsweredInferred · 85%
AI summaryA systematic internaliser does matched principal trading only 'occasionally' if it has no systems intended to match opposite client orders, such trades are not a recurrent or significant source of revenue, and it does not market the activity.
- Q&AAnsweredInferred · 70%
AI summaryAsked whether the systematic internaliser calculations are done at legal entity or group level and how branches are treated. ESMA deleted the question on 10 October 2025.
- Q&AAnsweredExplicit reference · 90%
AI summaryThe references to market makers in the exemptions in Article 2(1)(d)(i) and 2(1)(j) MiFID II cover both firms with a market making agreement under Article 17(4) and other market makers within Article 4(1)(7).
- Q&AAnsweredInferred · 70%
AI summaryAsked which transactions (non-price-forming, primary market, on-venue on behalf of clients, off-book trades reported to venues) count towards the systematic internaliser thresholds. ESMA deleted the question on 10 October 2025.
- Q&AAnsweredInferred · 85%
AI summaryA firm that merely transmits a client order to another firm that executes it algorithmically is not itself engaged in algorithmic trading.
- Q&AAnsweredInferred · 80%
AI summaryTrading with an algorithm that involves only a few processes, such as quotes that replicate a venue's prices, is still algorithmic trading.
- Q&AAnsweredInferred · 80%
AI summaryAn automated order router that sends the same unmodified order to several venues, and cancels the unexecuted copies once one is filled, is not algorithmic trading, because it only chooses venues and changes no other order parameter.
- GuidelinesPublishedESMA rulebook
AI summaryESMA guidelines (ESMA/2016/574) on cross-selling investment services with other services or products as a package or condition of an agreement, covering disclosure of prices, costs and risks, whether clients can buy components separately, conflicts and staff incentives, and post-sale cancellation, with examples of detrimental practices.
- Q&ALegacy Q&A documentESMA rulebook
AI summaryESMA's consolidated legacy Q&A document (ESMA70-872942901-36, last updated 23 September 2022) on commodity derivatives under MiFID II and MiFIR, covering position limits, the ancillary activity exemption, position reporting, position management controls and third-country issues. It is no longer updated; later Q&As are in ESMA's Q&A tool.
- Q&ALegacy Q&A documentESMA rulebook
AI summaryESMA's consolidated legacy Q&A document (ESMA70-872942901-38, final version 13 October 2023) on market structure topics, covering data disaggregation, direct electronic access and algorithmic trading, the tick size regime, multilateral and bilateral systems (including OTFs and systematic internalisers) and access to CCPs and trading venues. It is no longer updated; later Q&As are in ESMA's Q&A tool.
- Q&ALegacy Q&A documentESMA rulebook
AI summaryESMA's consolidated legacy Q&A document on MiFID II and MiFIR transparency (final version 27 October 2023, printed with the reference ESMA70-1562901-35), covering equity and non-equity transparency, pre-trade waivers, the double volume cap, the systematic internaliser regime, data reporting services providers and third-country issues. It is no longer updated; later Q&As are in ESMA's Q&A tool.
Consultations
- ConsultationClosed 15 Nov 2016Inferred · 85%
AI summaryHM Treasury proposal, following the Financial Advice Market Review, to align the UK definition of regulated financial advice (article 53 RAO, 'advising on investments') with MiFID's narrower personal-recommendation test, so authorised firms can offer guidance without straying into regulated advice. Ran 20 September to 15 November 2016; the government adopted the change for regulated firms, keeping the wider RAO definition for unregulated firms.
Commentary
No law-firm commentary is linked to this provision yet.
393 more documents relate to MiFID II as a whole without naming an article.
UK counterpart
- DivergedExplicit reference · 90%
EU changes after exit: Directive (EU) 2019/2177 (by 1 Jan 2022), Directive (EU) 2021/338 (by 28 Feb 2022), Regulation (EU) No 909/2014 (by 1 Jan 2023), Regulation (EU) 2022/858 (by 23 Mar 2023), Directive (EU) 2024/790 (from 29 Sept 2025), Directive (EU) 2024/2811 (from 6 Jun 2026).
- COBS 3.2.1R General definition
- COBS 3.4.1R
- COBS 3.5.1R
- MAR 5A.3.6R Proprietary trading
- SUP 12.5.6AR Prohibition of multiple principals for certain activities
- SUP 12.5.8R Required contract terms for FCA registered tied agents
- DISP 1.1A.5G Application: Who? What?
FCA Handbook references © FCA, used under the Open Government Licence v3.0. Rulestack is independent and not endorsed by the FCA.
Version history
- From 6 Jun 2026
- From 28 Mar 2024 to 6 Jun 2026
- From 23 Mar 2023 to 28 Mar 2024
- From 28 Feb 2022 to 23 Mar 2023
- From 1 Jan 2022 to 28 Feb 2022
- From 1 Jul 2016 to 1 Jan 2022
- From 17 Sept 2014 to 1 Jul 2016
Each entry is a consolidated version of the act on EUR-Lex in which this provision appears. The text itself is on the official site.