MIFID Directive

Solventis

MIFID is the European Directive on Financial Markets and Instruments that became effective on 1st November 2007 in all the European Union countries, with a twofold objective:

  1. Create a single financial service market and preserve its integrity.
  2. Promote transparency, fairness and investor protection.

According to the Financial Services Action Plan the EU has adopted a New Directive aimed at reinforcing the Community legislative framework for investment services and financial instrument markets, with the aim of reaching two main objectives in terms of regulation:

  1. To improve investor protection and preserve market integrity.
  2. To promote fairness, transparency, efficiency and the integration of financial markets.
  • Products

    The investment products encompassed under the MIFID Directive can be divided into the following categories according to their level of complexity:

    Complex Products:
    Non-complex products:
    - Derivative products
    - Structured products (Structured bonds, etc.)
    - Hedge Funds
    - Non-fixed Income IFs, Fixed income IFs, Mixed IFs and Monetary Ifs
    - Guaranteed IFs, Real Estate IFs and VaR
    - Bond markets
    - Equity markets

  • Clients

    CLIENT CLASIFICATION:

    In order for the entities to adopt the necessary measures to protect each type of investor while contracting products and services, the new Directive proposes the classification of clients into three categories:

    1. Retail Client:
      • A Retail Client is any client not classified under the professional client category.
      • A Retail Client is considered a client needing a greater level of protection regarding the purchased investment products and services.

    2. Professional Client:
      • A Professional Client is considered a client with the necessary experience, knowledge and qualifications to make its own investment decisions and to correctly assess the risks inherent to such decisions.
      • According to regulations, this type of client will therefore require a lower level of protection than the retail client.
      • According to its size and scope of operations, a Professional Client is classified in two groups:
        1. Automatic:
          • Entities subject to regulator supervision and authorized to operate in financial markets.
          • Companies complying, individually, with two of the following requirements:
             Total Balance: 20 million Euros. Net Business Turnover: 40 million Euros Shareholders' Equity: 2 million Euros.
          • National and regional governments, public organizations managing public debt, central banks and other similar international organizations.
          • Other institutional investors, the activity of which as a company is to invest in financial instruments.
        2. Voluntary: Those not included under the automatic Professional Client description when complying with a minimum of two of the following requirements:
          • The client has undertaken transactions of significant volume in the securities market with an average frequency of 10 times per quarter over the past four previous quarters.
          • The value of the client's financial instrument portfolio is greater than 500,000 Euros.
          • That the client holds or has held, for at least one year, a professional position in the financial sector requiring knowledge of the transactions or services rendered.

       
    3. Eligible Counterparty:
      • The Eligible counterparty is a sub-group within the professional client group made up of professionals with extensive knowledge, experience and financial capacity in the securities markets. Such is the case of investment companies, collective investment organizations and asset management companies, pension funds and fund managers, government administrations, central banks and international organizations.
      • This kind of client has maximum flexibility
    CHANGES OF CLIENT CLASSIFICATION:

    The retail client can request in writing a change of category to a voluntary professional client providing it complies with aforementioned requirements. However, the classification as a Professional Client implies lower levels of protection regarding the provision of investment products and services.

    Likewise, the Professional client can request in writing a change of category to retail client for the purpose of ensuring a greater level of protection.

    PERFORMANCE BEFORE CLIENTS:

    This classification aims at offering clients the investments that best suit their profile. Therefore, the entity rendering the investment services must obtain specific information from the client in order to assess the suitability and convenience of the products the client needs. In order to obtain such information the client must undertake two tests:

    1. Convenience Test:

      The test assesses the client's knowledge on the group of financial products it wishes to operate with. In the event of a professional client, it will be assumed that such client has the necessary experience and knowledge to understand the risks of the transactions, services and products.

    2. Test de Idoneidad:

      This test assesses the client's risk profile, as well as its knowledge and economic situation in respect of the financial products. The test also allows obtaining information regarding the client's investment objectives. The client must report any significant change in its situation. In the event of a retail client, it must provide all the aforementioned information.

      If the information required from the client is not provided, the entity rendering the services will notify the client that it cannot recommend investment services or financial instruments in relation to which such information is necessary. It can only recommend the investment services or financial instruments it has sufficient information on in order to provide recommendations.

    PRODUCT SALES:
      Type of Product
      Non-complex Complex
    Retail Client Without Test Convenience Test
    Professional Client Without Test Without Test
    Advice*
    Retail Client Suitability Test
    Professional Client Suitability Test

    (*) Advice is understood as personalized recommendations made to the client, whether at the request of such client or by initiative of the investment company, with respect to one or more than one transactions involving financial instruments.

    As for the performance of the entity providing the investment services and in accordance with the best practices to carry out the orders established by the MIFID, the entity must adopt all reasonable measures to obtain the best result possible for its clients.