MiFID for Investment Managers, Client Relation Managers and Brokers

2007

This Presentation will cover: The new Client Categorizations

What additional Know Your Customer information we

need to collect What is advice (personal recommendation) under MiFID When are the Duties of Suitability and Appropriateness

owed to clients, and what are they? How does the narrower definition of “execution-only”

apply to the firm? What is the new duty of “best execution” and what is the

firm’s policy? Changes in recording orders and transactions

Client Categorization

Professional

Clients

Retail

Eligible Counterparty

Clients

References to clients and to professional clients include eligible counterparties

[Suggestion- select which of 3 categories of clients the firm will have: choice of putting new criteria for each category onto slides, or of handing out this information, and only setting out key differences current and new categories such as firm’s policy on categorizing other regulated firms as eligible counterparties or professional clients, application of financial criteria on single company rather than group basis, limiting of eligible counterparty status to dealing and arranging services, different financial size criteria in new categories from present categories etc]

How will the new Client Categories apply to the firm?

How will the new Client Categories apply to the firm? – Examples?

[give examples of particular firm clients under current and new rules]

How will existing Clients be categorized under the new Rules? All clients at 31 October 2007 map across to equivalent new category even if new criteria not satisfied

Market Counterparty to Eligible Counterparty Intermediate Customer to Professional Client Private to Retail Client

But only if firm holds records under current rules evidencing correct categorization

How will the new Client Categories apply to existing clients of the firm – examples of inadequate records [select examples from firms records

relevant to its categories e.g. information on opted up intermediate clients who are small corporates or individuals.]

Know Your Customer

What additional Know Your Customer information should you collect under the new Rules?[Firm to complete any additional KYC information from NEWCOB or other sources for different categories. For detailed slides on KYC under new rules see separate sheet of questions and answers on Suitability and Appropriateness of Christopher Bond on the member’s section of the website.]

Advisory Services(Personal

Recommendations)

Summary of the definition of “Personal Recommendation” Recommendation to buy sell or hold Given to a particular investor or potential investor (e.g. not widely distributed) Awareness of investor’s particular circumstances (i.e. we hold KYC on client)

Important because a “personal recommendation” is “advice” under NEWCOB with suitability consequences

Note: It will not be a personal recommendation if issued exclusively through distribution channels or to the public.

The definition of “Personal Recommendation” - Examples

[Here give examples relevant to firm’s business e.g. (in retail) brokers recommendations (not a p.r.) followed by phone call with client (probably a p.r.) or (in wholesale) trade ideas sent to selected clients (not a p.r.) followed by price negotiation with professional client (probably not a p.r.)]

Suitability and Appropriateness

When is the Duty of Suitability owed to Clients?

When advisory or discretionary management services provided (but duty of Appropriateness may apply when other services provided)

To both Retail and Professional Clients (but not to Eligible Counterparties).

What are the Duties of Suitability and Appropriateness?

Appropriateness Suitability

Note: Suitability Reports may need to be made to clients

KYC

Knowledge(Not Professional

Clients)

Experience(Not Professional

Clients)

Financial Situation(Not per se

Professional Clients)

Knowledge(Not Professional

Clients)

Investment Objectives

Experience(Not Professional

Clients)

Duty of Suitability - Examples

[here put in different types of clients of firm, if they will be owed duty of suitability, and how the firm’s procedures will change to meet new detailed requirements.]

Execution - Only

What Transactions will be covered by the execution - only exemption? Transaction is at the initiative of the client Security is of “non-complex” type (see next

slide) Security is frequently traded Security has no future or contingent liability Enough information is available for clients to

make an informed judgement Client is warned there is no duty of suitability

What Securities are “non-complex”?

Shares admitted to trading Regulated

Market on EEA Stock Exchange or

Exchange on appropriate list

UCITS (including OIECs)

Money Market Instruments

Bonds and Securitized Debt (if no

embedded derivatives)

Non-complex

Exemption – only - Example

[put in examples from the firm’s securities activities]

Best Execution

What is the Duty of Best Execution?

“a firm must take all reasonable steps to obtain, when execution orders, the best possible result for it’s clients taking into account the execution factors” (NEWCOB 11.2.1)

Note: Applies to both Retail and Professional Clients

Best Execution – The Firm’s Policy

[here put in relevant parts of the firm’s best execution policy and disclosure to clients]

Records

Recording of Orders and Transactions

[here put in changes to the firm’s recording procedures.]