MiFID will contribute to the EU financial market integration to the extent that it succeeds in smoothing-out divergent transaction costs and enhancing the level and diversification of finance through the elimination of impediments on cross-border transactions, thus reducing home bias. The latter will depend on whether European agents do actually obtain a true access into the European capital market. Moreover, MiFID is expected to widen risk transfer/sharing possibilities in the EU thus overhauling financial intermediation. To effectuate efficient risk transfer, national regulators will have to acquire adequate regulatory powers and exercise their supervisory duties in an effective and coordinated way. However, the approach MiFID takes to reform European capital markets may not contribute to the containment of systemic risk for it tends to increase the homogeneity in financial behavior, thus potentially decreasing liquidity and therefore precipitating systemic disruption. This means that in the post-MiFID era, regulators must establish efficient mechanisms against financial insolvency of investment firms.
