MiFID Romanian experience. Radu Ropota 6 July 2007

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1 MiFID Romanian experience Radu Ropota 6 July 2007

2 MiFID what is it? Markets in Financial Instruments Directive (2004/39/EC) replaces Investment Services Directive (ISD) (93/22/EEC) level 1/level 2 Level 1 = framework Directive (2004/39/EC) Level 2 = implementing measures (2006/73/EC) Regulation 1287/2006 implementing Directive 2004/39/EC 06 July

3 MiFID when? Transposition into national law of each EEA member state - by 31 January 2007 National laws come into force - by 1 November July

4 MiFID implementation in Romania Transposition in full of level 1 and level 2 Directives notified to the Commission no further primary legislation required no further secondary legislation required no further rules or regulations made by a competent authority required National Securities Commission Regulation no. 32/2006 regarding financial investment services ( Financial Services Regulation ) National Securities Commission Regulation no. 2/2006 on regulated markets and alternative trading systems Commission Regulation no. 1287/2006 implementing Directive 2004/39/EC 06 July

5 Romanian competent supervising authority The National Securities Commission article 1 (2) the National Securities Commission is the competent authority to apply the provisions of the Financial Services Regulation Possible overlapping responsibilities with the National Bank of Romania passporting 06 July

6 Scope of the Financial Services Regulation The Financial Services Regulation applies to activities set forth in Annex 9: Reception and transmission of orders in relation to one or more financial instruments Execution of orders on behalf of clients Dealing on own account Investment advice Safekeeping and administration of financial instruments for the account of clients, including custodianship; etc carried out in relation to financial instruments (as defined under the Romanian Capital Market Law) The Financial Services Regulation does not apply to activities carried out in respect of financial instruments traded exclusively on the monetary market. 06 July

7 Financial Services Regulation what does it cover? Changing authorisation rules extension of scope investment advice commodities, complex derivatives multilateral trading facilities own account dealing New organisational rules compliance, other systems and controls management of conflict of interest new record keeping rules client asset rules New client documentation new client classification scheme marketing rules information about firm and its services New conduct of business rules new suitability, appropriateness rules best execution rules order handling rules Equities trading, market structure new quote rules for systematic internalisers post trade transparency IT, operations transaction, trade reporting client confirmations, reports record keeping client documentation 06 July

8 Timelines Transparency requirements and market integrity 1 st of June 2007 Changes in internal rules and regulations in order to comply with Financial Services Regulation 30 th of June 2007 Notification to the National Securities Commission of the internal rules and procedures, organisational chart, operating and organisational regulations, etc 15 th of July July

9 MiFID hot topics: (1) client classification Retail clients default category clients who aren t professional clients or eligible counterparties ( ECPs ) plus opted down professionals/ ECPs Professional clients Per se professional clients: clients who meet specified criteria in Annex 8 of the Regulation no. 32/2006 Elective professional clients: other clients assessed to have sufficient expertise Eligible counterparties Per se ECPs: clients who meet specified criteria Elective ECPs: other clients assessed to have sufficient expertise Obligation to notify all newly classified clients of category 06 July

10 Opt-up/ opt-down Opt-up retail to professional client Assess expertise, experience and knowledge of client Client must meet two of the following: - Carried out on average 10 significant transactions per quarter over previous 4 quarters - Financial instrument portfolio exceeding EUR Works / worked in the finacial sector for at least one year and has relevant knowledge of the transactions/services Client must confirm opt-up in writing Written risk warning of loss of protections/investor compensation rights Client must confirm awarness of losing these rights in a separate document to any client agreement Opt-up professional client to eligible counterparty Opt-down professional to retail client Inform client of classification and the possibility to opt-down Optional whether firm agrees to request for opt-down Written agreement that the client will not be treated as a professional for the purposes of the conduct of business rules Opt-down eligible counterparty to professional/retail client Optional whether firm agrees to request for opt-down Default position is to be treated as professional client Upon specific request treated as retail client 06 July

11 Significance of client classification Application of conduct of business rules Retail client full conduct of business regime Professional client - Many conduct of business rules (including suitability, appropriateness, best execution) will apply - Different degree of due diligence and care required - Certain information requirements do not apply Eligible counterparty - Dealing the conduct of business rules, best execution and certain of the client order handling rules do not apply - All other services (including investment advice/portfolio management) the rules still apply 06 July

12 Client classification implications Real change to the types of clients, not just a change in names Need to check client s home state classification regime More formal requirements as to classification, including notifications and risk warnings 06 July

13 Hot topic 2: client documents Information about classification Notify classification Notify opt-up/down rights and related level of protection Information to retail/professional clients About financial instruments (risk warnings) Costs and associated charges Information to professional clients information in respect of safeguarding of client assets limited to information about: - existence of security interest/lien or other right over those assets Right to request same information as a retail client Information to retail clients Before the client is bound by any agreement/ provision of services Provide information: - terms of agreement - about the firm (including name, address, contact details, regulatory status, name and address of regulator) - how to communicate - services (including client reporting, use of tied agents, conflicts policy, how client funds/assets are held, trading venues) - portfolio management Relevant information in respect of safeguarding of client assets Detailed information about charges 06 July

14 Terms of business Terms of business contain much conduct of businessrelated material What is covered within Financial Services Regulation: Information about the firm/services Information about instruments/risk warnings Information about costs/charges Information about client assets/client money Suitability risk warnings Client classification notification Classification opt-up/downs Best execution policy Conflicts policy etc......together with new client classification rules, client documentation is likely to change and re-papering will follow.. 06 July

15 Client documentation implications Form and content of client agreements - regulated One-way or two-way agreements? Re-papering unavoidable 06 July

16 Hot topic 3: Suitability/appropriatneness Assessing if the client s knowledge and experience in the investment field relevant to the specific type of product or service Increasing standard of assessment depending on business type Advice and portfolio management (A) Other services (B) Execution-only (C) Applies to retail and professional clients Execution only business (C) No client fact find Only available where service relates to: Shares traded on a regulated market Fixed income UCITS Other non-complex instruments (not a derivative, liquidity requirements, freely available information on risks, no contingent liability) 06 July

17 Fact-finds Suitability Investment advice and portfolio management (A) Relevant knowledge and experience Financial situation Investment objectives For professional clients can assume knwledge and experience and, for advice, financial situation If information is not obtained, firms should not recommend services/instruments Appropriateness Other Services (B) Relevant knowledge and experience - Volume and frequency of past dealings - Types of service and instrument the client is familiar with - Professional background and level of education of client For professional clients can assume knwledge and experience If a client provides insufficient information to assess appropriateness, the firm must warn the client that it is unable to assess appropriateness. 06 July

18 Suitability/appropriateness implications What information do you already have? Adaptation of current fact find questionnaires Fact find for professional clients Investment objectives (for portfolio management) financial situation Record keeping to demonstrate compliance 06 July

19 Questions & answers? 06 July

20 OFFICES 29 offices in 20 countries Amsterdam Clifford Chance LLP Droogbak 1A 1013 GE Amsterdam The Netherlands T F Bankgok Clifford Chance (Thailand) Ltd Sindhorn Building Tower 3 21 st Floor Wireless Road Pathumwan Bangkok 10330, Thailand T F Barcelona Clifford Chance S.L. Av. Diagonal Barcelona Spain T F Beijing Clifford Chance LLP 3326 China World Tower 1 No. 1 Jianguomenwal Dajie Beijing China T F Brussels Clifford Chance LLP Avenue Louise 65 Box 2, 1050 Brussels Belgium T F Bucharest Badea Asociatii in association with Clifford Chance 18 Calea Dorobantilor Sector 1 Bucharest Romania T F Budapest Köves Clifford Chance (Köves & Társai Ügyvédi Iroda Clifford Chance LLP) Madách Trade Center Madách Imre út Budapest Hungary T F Dubai Clifford Chance LLP Dubai World Trade Centre 18 th Floor PO Box 9380 Dubai United Arab Emirates T F Düsseldorf Clifford Chance Königsallee Düsseldorf Deutschland T F Frankfurt Clifford Chance Mainzer Landsraße Frankfurt am Main Deutschland T F Hong Kong Clifford Chance 29 th Floor Jardine House One Connaught Place Hong Kong SAR T F London Clifford Chance LLP 10 Upper Bank Street Canary Wharf London E14 5JJ United Kingdom T F Luxembourg Kremer Associés & Clifford Chance 4 Place de Paris B.P L-1011 Luxembourg Grand-Duché de Luxembourg T F Madrid Clifford Chance S.L. Paseo de la Castellana Madrid Spain T F Milan Clifford Chance Studio Legale Piazzetta M. Bossi, # Milan Italy T F Moscow Clifford Chance CIS Ltd Ul. Sadovaya Samotechnaya 24/ Moscow Russia T F Munich Clifford Chance Theresienstraße Munich Deutschland T F New York Clifford Chance US LLP 31 West 52 nd Street New York N.Y USA T F Padua Clifford Chance Studio Legale Viale Felice Cavollotti Padua Italy T F Paris Clifford Chance Europe LLP 112 Avenue Kleber BP 163 Trocadero Paris Cedex 16 France T F Prague Clifford Chance Jungmannova Plaza Jungmannova Prague 1 Czech Republic T F Rome Clifford Chance Studio Legale Palazzo Gentili Via Sistina, # Roma Italy T F São Paulo Clifford Chance Rua Helena, th Floor SP Sao Paulo Brazil T F Shanghai Clifford Chance LLP 40 th Floor Bund Centre 222 Yan An East Road Shanghai China T F Silicon Valley Clifford Chance US LLP 990 Marsh Road Menlo Park California USA T F Singapore Clifford Chance Wong One George Street 19th Floor Singapore Singapore T F Tokyo Clifford Chance Akasaka Tameike Tower 6 th Floor , Akasaka Minato-ku, Tokyo Japan T F Warsaw Clifford Chance Norway House ul. Lwowska Warsaw Poland T F Washington D.C. Clifford Chance US LLP 2001 K Street NW Washington DC USA T F July

21 MiFID Romanian experience Clifford Chance, 10 Upper Bank Street, Canary Wharf, London, E14 5JJ, UK Clifford Chance LLP 2006 Clifford Chance Limited Liability Partnership

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