MiFID II Working Group Meeting

Transcription

1 MiFID II Working Group Meeting Presentation and Review of the proposed new VDF Structures Dirk Henkels,

2 Agenda Introduction Proposed new structure technical explanation and examples Specific topics and discussion Outlook / road map for 2017 Varia / next working group meeting Page 2

3 Topics out of scope The following topics are part of MiFID II but neither in scope of this workshop nor this presentation (separate workshop in due course): Best trading venue BTV Pre / post trade transparency Reporting Listing life cycle Page 3

4 Proposed new structures in VDF message type TKFSD for investor protection Branching diagram for VDF message type TKFSD New segments in VDF message type TKFSD Domain values for schemes and symbols Page 4

5 Branching Diagram for VDF message type TKFSD GR1 M 1 FSD M 1 A new group 7 / Segments FSM & FSN will be added after group 6 GR2 M 1 VAI M 1 MGA VAK GR3 TXN TQU TKO C 2 C 6 C 500 C 12 C 40 C 2 LRI M 1 GR4 GR5 GR6 GR7 TIG C 20 C 20 C 50 C 100 C 50 FSE FSF FSR FSM M 1 M 1 M 1 M 1 FST FST FST FSP FSS FSU FSN C 10 C 10 C 10 C 20 C 2 C 10 C 100 Page 5

6 New Segments in VDF message type TKFSD GR7 C 100 FSM REPORTING / REGULATION CLASSIFICATION M 1 K991 SEGMENT- / ELEMENT-QUALIFIER M 0991 Segment-Qualifier segqual M an Element-Qualifier fieldqual C an Classification-Scheme mifidclassscheme M an Classification-Symbol mifidclasssymbol M an Applicability applictaxrep M n Valid from datefrom C an Valit to dateto C an Allocation type instringrpstatus C n..5 FSN CLASSIFICATION DETAILS C 100 K991 SEGMENT- / ELEMENT-QUALIFIER M 0991 Segment-Qualifier segqual M an Element-Qualifier fieldqual C an Classification-Details mifidtradeinfo M an..12 K816 Values / further Information C 0983 Currency-Scheme currschemeid C an Currency Code curr C an Amount amt C n Unit unit C n Quotation Type quote C n Allocation type instringrpstatus C n Text descr C an 240 Page 6

7 Investor protection schemes Scheme Description Long Description MIF2TMCT MiFID II Target Market Client Type Client type for which the instrument is designed for MIF2TMKE MiFID II Target Market Knowledge and Experience Required know how and experience to understand the instrument MIF2TMBL MiFID II Target Market - Ability to bear losses Ability and willingness to bear losses or require protection MIF2TMRP MiFID II Target Market - Risk / reward profile Risk indicators and classification MIF2TMIO MiFID II Target Market - Investment Objectives Client's Investment Objectives MIF2TMCN MiFID II Target Market - Client's needs >tbd< MIF2TMDS MIF2COMP MiFID II Target Market - Distribution Strategy MiFID II Complex / Non Complex Distribution Strategy / Distribution Channel as defined by manufacturer Classification of financial instruments into "complex / non complex" according to MiFID II MIF2INDI MiFID II Indicators Additional indicators / classifications like leverage Page 7

8 Investor protection symbols per scheme - 1 Scheme Code Description Long Description Target Market Client Type MIF2TMCT 1 Retail Clients instrument suitable for retail clients and professionals MIF2TMCT 2 Professional Clients instrument suitable for professional clients only Target Market Knowledge and Experience MIF2TMKE 1 Basic instrument requires basic knowledge and experience MIF2TMKE 2 Intermediate instrument requires intermediate knowledge and experience MIF2TMKE 3 Expert instrument requires expert knowledge and experience Target Market - Distribution Strategy MIF2TMDS 1 execution only can be sold online or without advisory MIF2TMDS 2 advised can be sold with investment advisory only MIF2TMDS 3 discretionary portfolio management possible Page 8

9 Investor protection symbols per scheme - 2 Scheme Code Description Long Description Target Market - Risk / reward profile MIF2TMRP 1 conservative Profile with low risk and corresponding expected return MIF2TMRP 2 balanced Profile with medium risk and corresponding expected return MIF2TMRP 3 speculative Profile with higher risk and corresponding expected return MIF2TMRP 4 SRI of PRIIPs MIF2TMRP 5 SRRI of UCITS MIF2TMRP 6 Manufacturer provided risk factor Target Market - Client's needs MIF2TMCN 1 Client's needs >tbd< Risk indicator defined by PRIIPs regulation, covering structured products, funds, ETDs, specific Bonds for retail clients (range from low risk = 1 to high risk = 7) Risk indicator defined by UCITS regulation, covering only funds for retail clients (range from low risk = 1 to high risk = 7) Manufacturers can provide their own risk factor, which is per se not comparable with other classifications. Page 9

10 Investor protection symbols per scheme - 3 Scheme Code Description Long Description Target Market - Investment Objectives MIF2TMIO 1 short term maturity or next call/put date <= 3Y MIF2TMIO 2 medium term maturity or next call/put date > 3Y & < 5Y MIF2TMIO 3 long term maturity or next call/put date >= 5Y MIF2TMIO 4 cash liquidity supply Investment must be easy to liquidate to provide cash liquidity MIF2TMIO 5 retirement provision Investment shall provide current or future retirement income MIF2TMIO 6 capital preservation MIF2TMIO 7 income Investment shall pay an income MIF2TMIO 8 growth Invested capital shall grow Strategy should preserve the invested capital from losses, no granted protection MIF2TMIO 9 long term growth with greater risk In the long run higher risk should yield in substantial capital growth MIF2TMIO 10 hedging of capital Specific risks are hedged in this investment MIF2TMIO 11 leveraged exposure Investment is leveraged, some risks are magnified Page 10

11 Investor protection symbols per scheme - 4 Scheme Code Description Long Description Target Market - Ability to bear losses MIF2TMBL 1 fully protected capital no loss of invested capital, 100% protected MIF2TMBL 2 partially protected capital partial loss of capital possible, protection between 0% and 100% MIF2TMBL 3 not protected capital total loss of invested capital possible, protection against further losses MIF2TMBL 4 loss of more than capital Losses larger than invested capital possible, no protection at all Complex / Non Complex MIF2COMP 1 Complex Instrument MIF2COMP 2 Non Complex Instrument Indicators MIF2INDI LEV Leveraged Instrument Indicator Investors classified as 'non-professional' will require consulting and in-depth information on this instrument from the securities trading company (investor protection), according to MiFID II. Investors classified as 'non-professional' will require less consulting and information on this instrument (in contrast to a complex instrument) from the securities trading company (investor protection), according to MiFID II. If applicability is set to yes, SIX recommends this instrument to be evaluated for being a Leveraged Instrument according to MiFID II. Page 11

12 Investor protection: additional domain values Code Description Long Description 7863 Applicability new positive applicable for positive target market new negative applicable for negative target market new positive & negative applicable for positive and negative target market new not relevant not relevant for any target market Page 12

13 Examples in VDF message type TKFSD for target market According to proposed branching diagram, segments, schemes and symbols for investor protection Examples Question Page 13

14 Target market: example - 1 FSM REPORTING / REGULATION CLASSIFICATION C100 K991 SEGMENT- / ELEMENT-QUALIFIER 0991 Segment-Qualifier segqual 0992 Element-Qualifier fieldqual 7876 Classification-Scheme mifidclassscheme MIF2TMCT MIF2TMRP 7877 Classification-Symbol mifidclasssymbol 1 = retail 2 = 1 = professional conservative 2 = balanced 3 = speculative 4 = SRI 5 = 'SRRI 6 = MF risk 7863 Applicability applictaxrep TM pos TM neg TM pos TM pos & neg TM neg TM not rel TM not rel TM not rel 2811 Valid from datefrom Valit to dateto Allocation type instringrpstatus FSN CLASSIFICATION DETAILS (Repeat 50) C100 K991 SEGMENT- / ELEMENT-QUALIFIER 0991 Segment-Qualifier segqual 0992 Element-Qualifier fieldqual 5 = by issuer 5 = by issuer 5 = by issuer 5 = by issuer 5 = by issuer 5 = by issuer 5 = by issuer 5 = by issuer 7878 Classification-Details mifidtradeinfo calculated calculated calculated K816 Values / further Information 0983 Currency-Scheme currschemeid 6804 Currency Code curr 5833 Amount amt Unit unit 2=Piece/unit 2=Piece/unit 2=Piece/unit 4812 Quotation Type quote 1=No 1=No 1=No conversion conversion conversion 7850 Allocation type instringrpstatus 9998 Text descr Page 14

15 Target market: example - 2 FSM REPORTING / REGULATION CLASSIFICATION C100 K991 SEGMENT- / ELEMENT-QUALIFIER 0991 Segment-Qualifier segqual 0992 Element-Qualifier fieldqual 7876 Classification-Scheme mifidclassscheme MIF2TMKE MIF2TMBL 7877 Classification-Symbol mifidclasssymbol 1 = basic 2 = intermediate 3 = expert 1 = 'fully protected capital 2 = partially protected capital 3 = not protected capital 4 = loss of more than capital 7863 Applicability applictaxrep TM pos TM pos & neg TM neg TM pos TM pos & neg TM neg TM not rel 2811 Valid from datefrom Valit to dateto 7850 Allocation type instringrpstatus FSN CLASSIFICATION DETAILS (Repeat 50) C100 K991 SEGMENT- / ELEMENT-QUALIFIER 0991 Segment-Qualifier segqual 0992 Element-Qualifier fieldqual 5 = by issuer 5 = by issuer 5 = by issuer 4 = by SIX 4 = by SIX 4 = by SIX 4 = by SIX 7878 Classification-Details mifidtradeinfo K816 Values / further Information 0983 Currency-Scheme currschemeid 6804 Currency Code curr 5833 Amount amt 4802 Unit unit 4812 Quotation Type quote 7850 Allocation type instringrpstatus 9998 Text descr Page 15

16 Question: Target Market alternative solution FSM REPORTING / REGULATION CLASSIFICATION C100 K991 SEGMENT- / ELEMENT-QUALIFIER 0991 Segment-Qualifier segqual 0992 Element-Qualifier fieldqual 7876 Classification-Scheme mifidclassscheme MIF2TMCT MIF2TMCT MIF2TMCT 7877 Classification-Symbol mifidclasssymbol 1 = retail 2 = professional TM pos TM neg 7863 Applicability applictaxrep TM pos TM neg yes yes yes yes 2811 Valid from datefrom Valit to dateto 7850 Allocation type instringrpstatus 5 = by issuer 5 = by issuer 5 = by issuer 5 = by issuer 5 = by issuer 5 = by issuer FSN CLASSIFICATION DETAILS (Repeat 50) C100 K991 SEGMENT- / ELEMENT-QUALIFIER 0991 Segment-Qualifier segqual 0992 Element-Qualifier fieldqual 7878 Classification-Details mifidtradeinfo 1 = retail K816 Values / further Information 0983 Currency-Scheme currschemeid 6804 Currency Code curr 5833 Amount amt 4802 Unit unit 4812 Quotation Type quote 7850 Allocation type instringrpstatus 9998 Text descr ORIGINAL ALTERNATIVE SOLUTION 2 = professional 1 = retail 2 = professional Page 16

17 Question: Target market investment objectives Proposal A cash liquidity supply retirement provision capital preservation income growth long term growth with greater risk Proposal B Liquidity Management Hedging of Capital Preservation of Capital Leveraged Exposure (Short-term) Speculation (Long-term) Investment / Accumulation of capital Hedging of Capital Leveraged Exposure Page 17

18 Question: leveraged indicator Leveraged: instrument return (profit or loss) is magnified relative to the return of the underlying or the invested capital Recommendation only: If applicability is set to yes, SIX recommends this instrument to be evaluated for being a leveraged instrument according to MiFID II. Initial issue conditions only, no life cycle Simple ruleset (tbd): Yes: derivatives No: straight bonds, common stock OK, rule set needs to be detailed Page 18

19 Examples in VDF message type TKFSD for complex / noncomplex According to proposed branching diagram, segments, schemes and symbols for investor protection Examples Questions Page 19

20 Complex / Non-Complex example Page 20

21 Complex / Non-Complex Overview Page 21

22 Complex / Non-Complex: assumptions listing Valid for all FI's - RM, MTF & "recognized 3 rd country markets are considered to be equivalent - SI & OTF are not considered in the rule set, since retail investors don t have access to these markets SIX has no data from these sources Page 22

23 Complex / Non-Complex: assumptions tradability - Regular trading is always required including when listed on RM, MTF etc. In contrast to MiFID I, where shares listed on an RM sufficed - On non RM, MTF etc. regular trading with transparent & independent prices, etc. is required (Article 57) - Assumption: bid / ask prices without actual trading are not sufficient for tradability requirements Page 23

24 Complex / Non-Complex: exceptions Valid for FI's with derivative characteristics Exceptions for classification as complex only when explicitly defined by ESMA respectively by NCA for country specific classifications. Known examples: Floater Rate Bonds / Notes with "familiar UL" CPI-linked Bonds / Notes Danish mortgage bonds in Denmark Page 24

25 Complex / Non-Complex: assumptions Floating Rate Question: Which ULs are to be regarded as "familiar for the average investor"? Assumption: Based on the statement of ESMA (CP 2015/610): " A note whose coupon varies with Libor or Euribor for example should be considered non-complex. SIX will rely on the underlying interest rates listed explicitly as part of the ESMA reporting (as required classification element in TRX-reporting) - interest rates listed by ESMA = "familiar" non-complex - interest rates not listed by ESMA = not familiar complex Page 25

26 Complex / Non-Complex: assumptions funds Non-structured UCIT's funds are always "non complex Assumptions: - Listing / quotation on a RM, MTF etc. - and / or regular trading are not required Non-structured non-ucit funds are "non-complex" only when listed on a RM, MTF etc. & when regularly traded Assumption: Non-UCIT funds are tested for derivative characteristics and tradability under Article 57 (like other FI s) Open item: Only definition of structured funds found is in context of KIID.. provide investors, at predetermined dates, with algorithm-based payoffs that are linked Is this definition applicable for MiFID II? Page 26

27 Complex / Non-Complex: overriding by issuer Question: Should SIX classify solely based on the rule set and make adjustments only by means of correction of the key data or should a "protected" value be provided as specified by the issuer? ESMA: Different qualifications of a financial instrument (as complex / noncomplex according to Article 19(6) of Directive 2004/39/EC cannot be completely excluded as each investment firm that wants to provide execution only services according to Article 19 (6) MiFID has to carry out its own assessment. However, in most cases the intermediaries should come to the same result based on the criteria as specified in Article 38 of Directive 2006/73/EC. Responsibility is by the intermediaries Assumption: SIX will override the ruleset when a classification by the issuer is provided Page 27

28 Proposed new structures in VDF message type TKHXD New segments in VDF message type TKHXD Domain values Page 28

29 Technical explanation new segment in VDF message type TKHXD Page 29

30 Proposed new structures in VDF message type TKIAD New element in segment IAJ Domain values Page 30

31 Technical explanation - new element in VDF message type TKIAD IAJ MISCELLANEOUS INSTITUTION IDENTIFICATIONS IAJ C 100 K991 SEGMENT / ELEMENT QUALIFIER M 0991 Segment qualifier segqual M an Element qualifier fieldqual C an Institution scheme instiidschemeid M an Institution ID instisym C an Valid from datefrom C an Valid until dateto C an Allocation type instringrpstatus C n..5 new Status LEI new C an..24 Status LEI Indicates the status of the registration of the legal entity with an LOU. Page 31

32 Status LEI: domain values Code Description Long Description (extract) 1 Pending Validation An application for an LEI that has been submitted and which is being processed and validated... 2 Issued An LEI Registration that has been validated and issued, and which identifies an entity that was an operating legal entity as of the last update. 3 Duplicate An LEI Registration that has been determined to be a duplicate registration of the same legal entity as another LEI Registration; the DUPLICATE status is assigned to the non-surviving Lapsed An LEI registration that has not been renewed and has exceeded any allowed grace period for renewal... 5 Merged An LEI registration for an entity that has been merged into another legal entity, such that this legal entity no longer exists as an operating entity... 6 Retired An LEI registration for an entity that has ceased operation, without having been merged into another entity... 7 Annulled An LEI registration that was marked as erroneous or invalid after it was issued. 8 Cancelled An LEI registration that was abandoned prior to issuance of an LEI. A record in this state is not published, but may be exchanged inter-lou. 9 Transferred An LEI registration that has been transferred to a different LOU as the managing LOU. A record in this state is not published, but may be used internally by the prior LOU for audit trail purposes. 10 Pending Transfer An LEI registration that has been requested to be transferred to another LOU Pending Archival An LEI registration is about to be transferred to a different LOU, after which its registration status will revert to a non-pending status. The PENDING_ARCHIVAL status serves to inform recipients of LOU-provided data files that an LEI record will be removed from that LOU s published file after the transfer is complete. Page 32

33 Existing structures in VDF message type TKFZD for investor protection - Costs Costs will be handled in existing structures in TKFZD-FTC If necessary, additional fees / charges will be added in due course Page 33

34 MiFID II Investor protection - costs Code FTC existing structure in TKFZD - FTC FEES / CHARGES ACTUAL: Segment including the actually valid data regarding fees, charges and commissions Type of fee/charge: Indicates the type of fee which is actually charged (e.g. front-end-fee) Free of charge (Yes): Flag indicating whether instruments will be issued or repurchased free of charge. K821 K821 K821 K828 K828 K828 FEE/CHARGE AMOUNT: Indicates the currently valid amount due for fees/charges FEE/CHARGE - MINIMUM AMOUNT FEE/CHARGE - MAXIMUM AMOUNT FREQUENCY FEES/CHARGES FREQUENCY MINIMUM FEES/CHARGES FREQUENCY MAXIMUM FEES/CHARGES 7920 Commission calculation basis 7942 Equalization method 2801 Valid as of: Effective date of commission 5835 Fee pro rata temporis in % Page 34

35 Product Costs MIFID II vs PRIIP MIFID II Description PRIIP VDF Product Costs One-off charges On-going charges All costs related to the transactions entry costs entry costs distribution fee (18,27); IEV (26); front-end load (1) exit costs exit costs redemption fee (2); deferred load (15) all on-going cost and charges related to the management of the financial product that are deducted from the value of the financial instrument all costs and charges that are incurred as a result of the acquisition and disposal of the instruments Other on-going costs Insurance costs Portfolio transaction costs administration fee (7); shareholder service fee(16) management fee (3); custody fee (13) KIID Ongoing Charges Figure (24) TER Total Expense Ratio (25) transaction fee (processing fee (20)) Incidental costs performance fees carried interest performance fees carried interest performance fee (5) Page 35

36 MiFID II - road map Ruleset Implementations Structures fixed VDF Release 01/ Client Information VDF Release 01/ Structures fixed VDF Release 02/ Client Information VDF Release 02/ MiFID II live Going live VDF Release 01/ Going live VDF Release 02/2017 Page 36 1/26/2017

37 MIFID I What will happen to the MIFID I data? Updates for MIFID I will be stopped in January 2018 The MIFID I data will remain in the system Page 37

38 Next Meeting of the Working Group If ESMA releases new relevant regulations, a meeting will be scheduled to discuss the impact. In case of substantial changes in the structure, a meeting will be scheduled to discuss the details. If requested, a meeting will be scheduled in the second quarter of 2017 Page 38

39 Thank you for your attendance, we are looking forward working with you on the successful implementation of MiFID II Page 39

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