LONDON, Dec 22 (Reuters) - The European Union's second wave of reforms for stock, bond, commodity and derivatives markets comes into force on January 3.
The Markets in Financial Instruments Directive II or MiFID II builds extensively on a 2007 set of rules by extending transparency requirements beyond shares to bonds, commodities and derivatives.
It improves investor protection to apply lessons from the 2007-09 financial crisis, and strengthens EU-level supervision.
The main elements:
* New transparency requirements for trading platforms to tell the wider market what prices are being offered so that investors can check they are getting the best deal;
* Much wider range of trades must be reported to regulators in a more standardised format. The data will be used by regulators to spot market abuses and by investors to highlight less competitive prices;
* Trading over the telephone replaced with electronic platforms in bonds and off-exchange derivatives to boost transparency;
* Systematic internalisers or matching buy and sell orders for shares inside a bank will be more strictly regulated;
* High-frequency trading or ultra fast trading rules updated;
* EU securities watchdog ESMA gets powers to restrict or ban financial products that are harmful;
* Banks and advisors must be clear about which type of investor is suitable for a product to avoid high-pressure sales that target everyone;
* Asset managers must be clear to customers about who pays for stock research they get from banks;
* Volume caps on "dark pool" or off exchange trading;
* Position or size limits on how much of a commodity a broker can hold undue influence over market prices.
(Reporting by Huw Jones. Editing by Jane Merriman)