MIFID Policy Client classification & Best execution

Transcription

1 MIFID Plicy Client classificatin & Best executin Status: APPROVED Type f Dcument: Plicy Versin: v1.0 Versin N Revisin Date Validatin due date Cmment Next review latest due date 1.0 June 2015 June 2015 New June 2016 Page 1 f 11

2 Cntents 1. Intrductin Purpse Client Classificatin... 5 a) Eligible cunterparties... 5 b) Prfessinal clients... 6 c) Retail clients Best Executin... 8 a) Apprach t best executin and best selectin... 8 b) Methds f executin... 9 c) Best Executin Factrs and Criteria d) Cnsent Page 2 f 11

3 1. Intrductin As a Luxemburg financial institutin, East-West United Bank, hereafter called EWUB, is bund by the laws and regulatins laid dwn by the Luxemburg authrities. The main lcal supervisry bdy fr the Luxemburg financial institutins is the Cmmissin n Supervisin f the Financial Sectr, called the CSSF. In cmpliance with the laws and regulatins gverning the Luxemburg financial sectr, EWUB wuld like t prvide infrmatin n the business rules f cnduct f the financial sectr with regard t investment risk. The rules apply t all Financial Sectr Prfessinals in Luxemburg, and their applicatin underlies the stringent cntrl f the CSSF. These rules f cnduct ( MiFID ) entitle EWUB t gather infrmatin n the Client s financial situatin, the Client s experience and knwledge in terms f investment prducts and services prvided by EWUB and his/her main bjectives regarding the services he/she requests frm EWUB. This infrmatin is imprtant fr EWUB t define the fllwing client categries: - a client wh is nt a prfessinal client (a retail client ) - a prfessinal client - an eligible cunterparty i.e. a prfessinal client twards whm the investment services prvider (the Bank) des nt need t bserve the rules fr dealing with clients when prviding certain investment services. The purpse f this classificatin is t prvide the Client with adequate infrmatin regarding investment prducts and the risks invlved in investment transactins. EWUB infrms the Client that he/she might incur lsses and that returns made n previus investments d, n n accunt, guarantee prfits fr the future. 2. Purpse The MiFID ( Markets in Financial Instruments Directive ) is a Eurpean Unin directive with the fllwing aims: - T harmnise the rules gverning investment services: the degree f harmnisatin intended under the MiFID has the advantage f prviding investrs with a high level f prtectin. It als allws investment firms t prvide their services acrss the Eurpean Unin, applying the supervisry regulatins applicable in the Member State frm which a given firm riginates. - T increase transparency and cmpetitin n financial markets: by setting efficiency and transparency rules fr the financial markets, the MiFID aims t imprve the quality f the services prvided. Opening up rder-executin lcatins t cmpetitin leads t mre efficient and cheaper services. Page 3 f 11

4 - T imprve prtectin fr investrs: the specific rules that apply t the different client categries defined by the MiFID aim t ensure a level f prtectin suited t their specific situatins and financial knwledge. MiFID gverns the activities f investment firms, regulated markets and authrised credit institutins which prvide ne r several investment services and/r cnduct ne r several investment activities. The main investment services and activities cncerned are the fllwing: - Receptin and transmissin f rders relating t ne r several financial instruments; - Prtfli management; - Investment advisry (currently nt ffered by EWUB) Financial instruments The MiFID applies t transactins n the fllwing financial instruments: - Transferable securities; - Mney market instruments; - Cllective investment scheme shares; - Optins, futures, swaps, frward rate agreements and any ther derivative cntracts relating t securities, currencies, interest rates r yields, r ther derivative instruments, financial indices r financial measures which may be settled physically r in cash; - Optins, futures, swaps, and any ther derivative cntract relating t cmmdities that can be physically settled prvided that they are traded n a regulated market and/r a Multilateral Trading Facility (MTF); - Optins, futures, swaps, frwards and any ther derivative cntracts relating t cmmdities, that can be physically settled, and nt being fr cmmercial purpses, which have the characteristics f ther derivative financial instruments, having regard t whether, inter alia, they are cleared and settled thrugh recgnised clearing huses r are subject t regular margin calls; - Derivative instruments used fr transferring credit risk; - Financial cntracts fr differences; - Optins, futures, swaps, frward rate agreements and any ther derivative cntracts relating t climatic variables, freight rates, emissin allwances r inflatin rates r ther fficial ecnmic statistics that must be settled in cash r may be settled in cash at the ptin f ne f the parties (therwise than by reasn f a default r ther terminatin event), as well as any ther derivative cntracts relating t assets, rights, bligatins, indices and measures, which have the characteristics f ther derivative financial Page 4 f 11

5 instruments, having regard t whether, inter alia, they are traded n a regulated market r an Multilateral Trading Facility, are cleared and settled thrugh recgnised clearing huses r are subject t regular margin calls. 3. Client Classificatin The MiFID defines the three fllwing client categries: - Eligible cunterparties ; - Prfessinal clients ; - Retail clients (nn-prfessinal). The purpse f client categrisatin is t establish different levels f client prtectin depending n their knwledge f financial instruments and services and their risk tlerance. The highest level f prtectin ges t clients categrised as retail. This includes services suited t the client s risk prfile (established befrehand) and mre extensive infrmatin. At the ther end f the scale, eligible cunterparties receive the lwest level f prtectin; fr example, they are the nly categry fr which the best-executin bligatin des nt apply. a) Eligible cunterparties The fllwing can be cnsidered eligible cunterparties: - Investment firms, - Credit institutins, - Insurance cmpanies, - Open-ended investment funds (UCITS) and their management cmpanies, - Pensin funds and their management cmpanies, - Other financial institutins authrised r regulated under EU law r the law f a Member State, - Svereign cuntries gvernments and their departments, including public bdies managing public debt, central banks and supranatinal rganisatins. Eligible cunterparties are subject t less regulatry prtectin due t their knwledge, their capabilities and their financial capacities. Hwever, they are nt entirely exempt, in particular they are bund by the rganisatinal rules laid ut in the MiFID. Page 5 f 11

6 b) Prfessinal clients Definitin A prfessinal client is a client wh pssesses the experience, knwledge and expertise t make its wn investment decisins and prperly assess the risks that it incurs. As such, it is prvided a lwer degree f prtectin than retail clients. Being deemed skilled n and knwledgeable abut the markets, the nly prtectin it gets is: An assessment f its investment bjectives. Such assessment will establish whether a service is apprpriate fr a given client befre it is prvided; An rder-executin plicy that defines the client s rder-executin criteria. Such plicy is updated annually. The fllwing are treated as per se prfessinals: - Entities which are required t be authrised r regulated t perate in the financial markets, i.e: Authrised r regulated financial institutins (ther than the nes defined under eligiblecunterparties), Cmmdity and cmmdity derivatives dealers, Lcal cmpanies, Other institutinal investrs. - Large entities meeting tw f the fllwing size requirements n a cmpany basis: Balance sheet ttal: EUR 20 millin, Net turnver: EUR 40 millin, Own funds: EUR 2 millin. - Other institutinal investrs whse main activity is t invest in financial instruments, including entities dedicated t the securitisatin f assets r ther financing transactins. Opt-up prfessinal clients (nn-prfessinal asking fr Prfessinal classificatin with weaker prtectin) By requesting pt-up prfessinal status, retail clients may waive part f the prtectin affrded by bestexecutin rules. Prfessinal clients that have made an pt-up request may nly be treated as pt-up prfessinals by EWUB after the assessment and ntificatin prcedure described belw has been cmpleted. - Client assessment Page 6 f 11

7 In rder fr applicants t be granted a lwer level f prtectin than that affrded by best-executin regulatins, an assessment f their skills, experience and knwledge must prvide reasnable assurance that they are capable f taking the required investment decisins and understanding the risks they run, in relatin t the srt f transactins they plan t carry ut and the services they expect t use. EWUB is authrised t treat any such clients as an pt-up prfessinals, prvided they satisfy at least tw f the fllwing criteria: The size f the client s financial instrument prtfli exceeds EUR , The client has carried ut transactins, in significant size, n financial instruments at an average frequency f 10 per quarter ver the previus fur quarters, The client wrks r has wrked in the financial sectr fr at least ne year in a prfessinal psitin, which requires knwledge f investment in financial instruments. - Client ntificatin Once all reasnable steps have been taken t ensure the retail client wh wishes t be granted pt-up prfessinal status fulfils the criteria described abve, EWUB may start the prcedure fr classifying the client as prfessinal as the client must state in writing that they wish t be treated as a prfessinal client, acknwledge and accepts the written warning f the prtectins and investr cmpensatin rights they may lse, and the cnsequences f lsing such prtectins as per GTCs. c) Retail clients Retail clients are thse wh fall neither in the eligible cunterparty nr in the prfessinal clients categries, and include thse wh have applied fr "pt-dwn" status, i.e. prfessinal clients wh have requested in writing t be treated as nn-prfessinal (retail) clients. Classificatin f clients is dne using the Investment Risk Prfile questinnaire in the Accunt Applicatin Frm. In case f empty r incmplete Risk Prfile questinnaire, the clients will be classified by default as Retail, ffering the maximum prtectin. Financial institutins and Prfessinals f the Financial Sectr will be by default classified as Eligible Cunterparties. Page 7 f 11

8 4. Best Executin The EU Market in Financial Instrument Directive (MiFID) requires that investment firms establish an Order Executin Plicy ( Executin Plicy ) and take all reasnable steps t btain the best pssible result when executing rders n behalf f its Clients. This dcument sets ut EWUB s Executin Plicy, which is accepted by the Client under the GTC he signs at accunt pening. The executin plicy applies t: - financial instruments accrding t annex 1 f Directive MiFID 2004/39/CE (namely: equities, bnds, derivatives, mney market instruments, financial cntracts fr differences, units in cllective investment undertakings). The financial instruments cvered by MiFID include mst financial instruments but d nt include (nn-exhaustively): Spt Freign Exchange and Spt cmmdity transactins; Lans and depsits. - all Retail and Prfessinal Clients ( Client r Clients ). This plicy des nt apply t Eligible cunterparties. The Executin Plicy explains ur apprach when prviding t ur Clients - best executin, when EWUB is executing the rder itself directly n the market; - best selectin, when EWUB is transmitting the rder t a third party fr executin. a) Apprach t best executin and best selectin Apprpriate technlgy fr ruting and executing the rder Apart frm specific exceptins, EWUB uses autmated systems t rute and execute custmer rders. The system as implemented has features which enable EWUB t: - access the main pls f liquidity these culd be ff-exchange; - rute the rders tward the executin venues that present the best market cnditins; - ensure rder executin cmpliant with the best executin plicy established by EWUB. In particular, the system allws the bank t execute client s rders by priritizing sme executin factrs (price, cst, liquidity) ver thers. Careful cnsideratin f the factrs f rder executin EWUB relies n the extensive day t day experience f its Glbal Market Department t execute all clients rders. Page 8 f 11

9 Where an rder requires manual executin because f its particular nature (an rder that can impact the market, vlatility impact f the underlying financial instrument, etc.) the Glbal Market Department decides, n a best effrt basis, upn the best strategy t wrk the rder. In sme cases, especially when the handling f a client rder requires particular expertise, EWUB will utilize sphisticated cunterparties pssessing the necessary expertise. When dealing with a retail client rder the Glbal Market Department will infrm prmptly the client f material difficulties that can affect the prper executin f the rder. Careful selectin and mnitring f Cunterparties and Brkers EWUB puts a particular emphasis n the selectin f Cunterparties and Brkers used t execute client s rder. Amng thers, these are the mst imprtant factrs cnsidered by EWUB when selecting a Cunterparty r a Brker: - Size, creditwrthiness and reputatin f the brker (cmpany rating); - A well established reputatin in relatin t a particular market r financial sectr; - Clearance and settlement capabilities; - Access t markets and distributin netwrks. In additin, EWUB will cnsider, as a criterin, the fact that the brker is MiFID cmpliant. b) Methds f executin Listed Financial Instruments When an rder is received, EWUB executes it directly n a Regulated Market r Multilateral Trading Facility (MTF) f which is a member r thrugh a third party participant with whm EWUB entered int an agreement fr handling and executing rders. Fr financial instruments admitted t trading n a regulated market r MTF, in the case the client has given his prir express cnsent, EWUB can als rute the rder t a third party, like, fr example, a market maker, r any ther venue that allws an executin f the rder n the ver-the-cunter (OTC) market. When pssible, in rder t prtect clients best interest, the Glbal Market Department matches the rders f its clients thrugh an authrized stck market r a Multilateral Trading Facility. Page 9 f 11

10 Unlisted Instruments Fr unlisted instruments EWUB acts n a best effrt basis t execute the rder as far as it is pssible within the parameters f its executin plicy. The client has t be aware that, in relatin t unlisted instruments, there may be liquidity, cst, settlement and timing cnstraints affecting executin. Fr unlisted structured prducts EWUB acts n the primary market (subscriptin and redemptin). In the case the client wants t liquidate the investment befre the expiratin date, the bank will apply, when it is pssible, the price ffered by the principal market maker. Cllective investment scheme With regard t cllective investment scheme EWUB acts nrmally n the Primary market (subscriptin and redemptin). Except fr ETF investments, EWUB reserves the pssibility t match clients psitins. Specific Instructins It is imprtant t pint ut that when a client gives specific instructins (fr example limit rder r the client requests executin f an rder n a specific venue) in relatin t the executin f an rder, the rder will be executed accrding t these instructins. Please be aware that a specific instructin given t EWUB fr the executin f an rder can prevent EWUB frm taking all the steps set up in its executin plicy in rder t btain the best pssible result fr the client. The selectin f a trade s parameters (such as its price, cunterparty, venue, timing and size) by clients wh have direct market access is cnsidered a specific instructin given t the bank. c) Best Executin Factrs and Criteria Best Executin Factrs EWUB takes int accunt the fllwing factrs when it makes a determinatin n where and hw t rute and execute a client rder: - Price; - Size; - Availability f price imprvement; - Cst; - Speed; - Likelihd f executin and settlement; - Any ther cnsideratin relevant t the executin f the rder. Page 10 f 11

11 Under nrmal circumstances ttal price will assume a fundamental rle in btaining the best pssible result fr the client. Other factrs can assume a relative higher imprtance in cnsideratin f the nature f the rder, client r market cnditins. Best Executin Criteria In assessing the relative imprtance f the best executin factrs when executing a client s rder EWUB will cnsider the fllwing criteria: - the characteristics f the client; - the characteristics f the rder (limit rder, market rder, stp lss rder); - the characteristics f the financial instrument that will subject f the rder. d) Cnsent EWUB is required t btain clients cnsent t its executin plicy. As Per GTC, the client is aware that the sending f an rder t EWUB after having received infrmatin n the executin plicy is interpreted as an expressin f cnsent. In additin, in the case f financial instruments admitted t trading n a regulated market r Multilateral Trading Facility, EWUB is required t btain the client s prir express cnsent in rder t be able t execute the rder utside a regulated market r Multilateral Trading Facility. Under n circumstance EWUB will execute an rder n a listed instrument utside a regulated market r MTF withut having received the prir client s cnsent. Clients (Prfessinal and eligible-cunterparty) express their cnsent t executing an rder utside a regulated market r Multilateral Trading Facility by signing the GTCs, including specific references t these cncerns. Ad-hc cnsent can be given by retail clients by sending an f letter tgether (r prir) t their rder. This cnsent wuld be filed tgether with the rder fr dcumentatin purpse. Page 11 f 11