MiFID II guide
MiFID II glossary
The terms you'll meet in MiFID II, MiFIR and the delegated regulations, defined in plain language, with links to the guides that cover them in depth.
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- 10% depreciation report
- A notice portfolio managers must send by the end of the business day when the overall value of a client’s portfolio falls by 10% since the start of the reporting period, and at each further multiple of 10% (Article 62 of Delegated Regulation 2017/565).
A
- Ability to bear lossesalso: Capacity for loss
- How much of an investment a client can afford to lose without harming their financial situation. MiFID II requires it to be assessed as part of the client’s financial situation, separately from their risk tolerance. Read the guide.
- AIFM
- Alternative Investment Fund Manager under the AIFMD. An AIFM authorised to provide portfolio management or investment advice must apply the MiFID II conduct rules when providing those services.
- Appropriateness assessmentalso: Appropriateness test
- A check, for non-advised services, that a client has the knowledge and experience to understand the risks of a product or service. The firm must warn the client if the product is not appropriate (Article 25(3) MiFID II). Read the guide.
B
- Best execution
- The obligation to take all sufficient steps to obtain the best possible result when executing client orders, taking into account price, costs, speed, likelihood of execution and settlement and other relevant factors (Article 27 MiFID II).
C
- Client categorisation
- Classifying each client as a retail client, professional client or eligible counterparty. The category determines the level of investor protection the client receives.
- Complex financial instrument
- An instrument whose risks are harder to understand, for example derivatives, structured products and instruments that embed a derivative. Complex instruments cannot be sold on an execution-only basis. Read the guide.
- Costs and charges disclosure
- Aggregated information, as cash amounts and percentages, on all costs of the investment service and the financial instruments involved. It is given before the service (ex-ante) and at least annually afterwards (ex-post) (Article 24(4) MiFID II, Article 50 DR 2017/565). Read the guide.
D
- Delegated Regulation (EU) 2017/565
- The Commission regulation that supplements MiFID II with detailed organisational requirements and operating conditions, including the rules on suitability (Article 54), appropriateness (Articles 55–56), costs (Article 50) and record-keeping (Articles 72–76).
- Durable medium
- Any instrument that lets the client store information addressed to them, refer to it later and reproduce it unchanged, such as paper or a PDF. Statements of suitability must be provided on a durable medium. Read the guide.
E
- Eligible counterparty
- The client category with the least protection, covering entities such as investment firms, banks, insurers and governments, for certain services such as order execution and dealing on own account (Article 30 MiFID II).
- ESMA
- The European Securities and Markets Authority, the EU authority that issues guidelines and Q&As on applying MiFID II and coordinates national supervisors.
- European ESG Template (EET)
- An industry data template, maintained by FinDatEx, that product manufacturers use to send distributors the sustainability data needed to match products to clients’ sustainability preferences. Read the guide.
- European MiFID Template (EMT)
- An industry data template, maintained by FinDatEx, that product manufacturers use to send distributors target market and cost information for MiFID II product governance and costs disclosure. Read the guide.
- Ex-ante and ex-post costs
- Ex-ante disclosure estimates costs before the service is provided. Ex-post disclosure reports the costs actually incurred, at least annually where there is an ongoing relationship. Read the guide.
- Execution-only
- Executing or transmitting client orders without an appropriateness assessment. This is allowed only for non-complex instruments, at the client’s initiative, with a warning that no assessment is made (Article 25(4) MiFID II). Read the guide.
I
- Independent advice
- Investment advice based on a sufficiently broad range of products, which are not limited to those issued by the firm or its close links. Firms providing it may not keep third-party inducements.
- Inducement
- A fee, commission or non-monetary benefit a firm receives from, or pays to, a third party in connection with a service to a client. Firms providing independent advice or portfolio management may not keep inducements, apart from minor non-monetary benefits (Article 24(7)–(9) MiFID II).
- Investment advice
- A personal recommendation to a client, at their request or on the firm’s initiative, about one or more transactions in financial instruments. It triggers the suitability assessment and, for retail clients, the statement of suitability. Read the guide.
K
- Knowledge and experience
- Information about a client’s familiarity with types of services, transactions and instruments, their past investing activity, and their education and profession (Article 55 DR 2017/565). It is assessed in both suitability and appropriateness. Read the guide.
M
- MiFID IIalso: MiFID 2, MiFID2
- The second Markets in Financial Instruments Directive, Directive 2014/65/EU, which has applied since 3 January 2018. It sets the EU rules for investment services, including investor protection.
- MiFIR
- The Markets in Financial Instruments Regulation, Regulation (EU) No 600/2014. MiFID II’s directly applicable companion, covering transparency, transaction reporting and trading obligations.
- Multilateral trading facility (MTF)
- A multilateral system, operated by an investment firm or market operator, that brings together third-party buying and selling interests in financial instruments under non-discretionary rules.
N
- Non-complex financial instrument
- An instrument with easily understood risks, such as shares admitted to trading on a regulated or equivalent market, plain bonds and money market instruments, and UCITS units other than structured UCITS. These can be offered execution-only. Read the guide.
O
- Organised trading facility (OTF)
- A multilateral trading system for non-equity instruments, such as bonds and derivatives, where the operator has discretion over how orders are executed. OTFs were introduced by MiFID II.
P
- Payment for order flow (PFOF)
- Payments a broker receives from a third party for forwarding client orders to it for execution. The 2024 MiFIR review banned it for retail clients, with a transitional exemption that ran until 30 June 2026.
- Portfolio management
- Managing a client’s portfolio on a discretionary, client-by-client basis under a mandate. It triggers the suitability assessment and periodic reporting duties. Read the guide.
- PRIIPs KID
- The key information document for packaged retail and insurance-based investment products. It is a standardised document from the manufacturer that is also a source of product cost data. Read the guide.
- Principal adverse impacts (PAI)
- The most significant negative effects of investment decisions on sustainability factors, such as greenhouse gas emissions or human rights. Products that consider PAI are one of the three categories of sustainability preferences. Read the guide.
- Product governance
- Rules requiring manufacturers to define and test a target market for each product, and distributors to understand the products and distribute them consistently with that target market (Articles 16(3) and 24(2) MiFID II).
- Professional client
- A client with the experience, knowledge and expertise to make their own investment decisions and assess the risks, either per se (such as banks and large companies) or on request if they meet the Annex II criteria. Professional clients get lighter protection in some areas.
Q
- Quick Fix
- Directive (EU) 2021/338, applicable from 28 February 2022. It eased some MiFID II requirements, made electronic information the default and simplified cost disclosure for professional clients. Read the guide.
R
- Retail client
- Any client that is not a professional client or eligible counterparty. Retail clients get the full MiFID II investor protection.
- Retail Investment Strategy
- An EU legislative package amending MiFID II, the IDD and PRIIPs to strengthen retail investor protection, including value-for-money benchmarks and a stricter inducement test. A political agreement was reached in December 2025.
- Risk tolerance
- A client’s willingness to accept investment risk in pursuit of returns. It forms part of their investment objectives in the suitability assessment, and is assessed separately from their ability to bear losses. Read the guide.
S
- SFDR
- The Sustainable Finance Disclosure Regulation, Regulation (EU) 2019/2088. Its Article 2(17) defines "sustainable investment", one of the three categories of MiFID II sustainability preferences. Read the guide.
- Statement of suitabilityalso: Suitability report
- A written report, given to a retail client before a transaction made on advice, that explains the advice and why it suits the client (Article 25(6) MiFID II, Article 54(12) DR 2017/565). Read the guide.
- Suitability assessment
- The process of collecting information about a client’s knowledge and experience, financial situation and investment objectives, and recommending only what suits them. It is required for investment advice and portfolio management (Article 25(2) MiFID II). Read the guide.
- Sustainability preferences
- A client’s choice of whether, and to what extent, Taxonomy-aligned investments, SFDR sustainable investments or products considering principal adverse impacts should be part of their investment. Asking about them has been required since 2 August 2022. Read the guide.
T
- Target market
- The group of end clients a financial product is designed for, defined by the manufacturer and refined by the distributor under product governance rules.
- Taxonomy Regulation
- Regulation (EU) 2020/852, which defines environmentally sustainable economic activities. A minimum proportion of Taxonomy-aligned investments is one of the three categories of sustainability preferences. Read the guide.
- Transaction reporting
- The MiFIR obligation for investment firms to report complete and accurate details of transactions in financial instruments to their competent authority by the end of the following working day (Article 26 MiFIR).
U
- UCITS management company
- A company managing UCITS funds. If authorised to provide individual portfolio management or investment advice, it must apply the MiFID II conduct rules for those services.
This guide is general information about EU rules, not legal advice. National implementation and your regulator's guidance can add requirements. Check the primary sources linked above before relying on it.