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Impact of the Market in Financial Instruments Directive (MiFID) on the Italian financial market: Evidence from bank bonds

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  • Alfonso Giudice

    (Università Cattolica del Sacro Cuore)

Abstract

The adoption of the European directive for Markets in Financial Instruments Directive (MiFID, Law n. 164/2007) introduced a change in Italian securities laws. The MiFID’s key objectives are market efficiency, integrity and fairness. The directive introduced measures to increase the market integration and liquidity of secondary markets to reach efficiency and integrity goals. In turn, banks and financial firms are asked to operate according to a general duty of fairness and honesty, with particular attention to the identification, prevention, management and disclosure of conflicts of interest. These rules should improve investor protection in the Italian financial market, which is historically characterized by a lower degree of market competition and a lower level of investor education. I collected financial information from 1283 bank bond prospectuses issued in the 2005–2010 period. I found that before MiFID adoption, bank bonds were issued at a negative spread with respect to the comparable risk-free rate, thus violating the diligence and fairness duties of the banks while acting as protective gatekeepers for their customers. After MiFID adoption, the bank bond spread became positive. However, investor protection was enhanced because of the higher competition in the bond market rather than because of the higher public surveillance of the fairness duties of the issuers.

Suggested Citation

  • Alfonso Giudice, 2017. "Impact of the Market in Financial Instruments Directive (MiFID) on the Italian financial market: Evidence from bank bonds," Journal of Banking Regulation, Palgrave Macmillan, vol. 18(3), pages 256-267, July.
    • Handle: RePEc:pal:jbkreg:v:18:y:2017:i:3:d:10.1057_s41261-016-0035-7
    DOI: 10.1057/s41261-016-0035-7
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    Cited by:

    1. Fabrizio Crespi & Emanuela Giacomini & Danilo V. Mascia, 2019. "Bail‐in rules and the pricing of Italian bank bonds," European Financial Management, European Financial Management Association, vol. 25(5), pages 1321-1347, November.

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    More about this item

    Keywords

    investor protection; MiFID; Bank bond;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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