sou · GUB374 · 2007-01-01 00:00:00 — 4.Where the risks associated with a financial instrument composed of two or more different financial instruments or services are likely to be greater than the risks associated with any of the components, the investment firm shall provide an adequate description of the components of that instrument and the way in which its interaction increases the risks. 5.In the case of financial instruments that incorporate a guarantee by a third party, the information about the guarantee shall include sufficient detail about the guarantor and the guarantee to enable the retail client or potential retail client to make a fair assessment of the guarantee. (first indent of Article 19(3) of Directive 2004/39/EC) Information requirements concerning safeguarding of client financial instruments or client funds 1.Member States shall ensure that, where investment firms hold financial instruments or funds belonging to retail clients, they provide those retail clients or potential retail clients with such of the information specified in paragraphs 2 to 7 as is relevant. 2.The investment firm shall inform the retail client or potential retail client where the financial instruments or funds of that client may be held by a third party on behalf of the investment firm and of the responsibility of the investment firm under the applicable national law for any acts or omissions of the third party and the consequences for the client of the insolvency of the third party. 3.Where financial instruments of the retail client or potential retail client may, if permitted by national law, be held in an omnibus account by a third party, the investment firm shall inform the client of this fact and shall provide a prominent warning of the resulting risks. 4.The investment firm shall inform the retail client or potential retail client where it is not possible under national law for client financial instruments held with a third party to be separately identifiable from the proprietary financial instruments of that third party or of the investment firm and shall provide a prominent warning of the resulting risks. 5.The investment firm shall inform the client or potential client where accounts that contain financial instruments or funds belonging to that client or potential client are or will be subject to the law of a jurisdiction other than that of a and shall indicate that the rights of the client or potential client relating to those financial instruments or funds may differ accordingly. 6.An investment firm shall inform the client about the existence and the terms of any security interest or lien which the firm has or may have over the clients financial instruments or funds, or any right of set-off it holds in relation to those instruments or funds. Where applicable, it shall also inform the client of the fact that a depository may have a security interest or lien over, or right of set-off in relation to those instruments or funds. 7.An investment firm, before entering into securities financing transactions in relation to financial instruments held by it on behalf of a retail client, or before otherwise using such financial instruments for its own account or the account of another client, shall in good time before the use of those instruments provide the retail client, in a durable medium, with clear, full and accurate information on the obligations and responsibilities of the investment firm with respect to the use of those financial instruments, including the terms for their restitution, and on the risks involved. (fourth indent of Article 19(3) of Directive 2004/39/EC) Information about costs and associated charges Member States shall require investment firms to provide their retail clients and potential retail clients with information on costs and associated charges that includes such of the following elements as are relevant: (a)the total price to be paid by the client in connection with the financial instrument or the investment service or ancillary service, including all related fees, commissions, charges and expenses, and all taxes payable via the investment firm or, if an exact price cannot be indicated, the basis for the calculation of the total price so that the client can verify it; (b)where any part of the total price referred to in point (a) is to be paid in or represents an amount of foreign currency, an indication of the currency involved and the applicable currency conversion rates and costs; (c)notice of the possibility that other costs, including taxes, related to transactions in connection with the financial instrument or the investment service may arise for the client that are not paid via the investment firm or imposed by it; (d)the arrangements for payment or other performance. For the purposes of point (a), the commissions charged by the firm shall be itemised separately in every case. (second and fourth indent of Article 19(3) of Directive 2004/39/EC) Information drawn up in accordance with Directive 85/611/EEC 1.Member States shall ensure that in respect of units in a collective investment undertaking covered by Directive 85/611/EEC, a simplified prospectus complying with Article 28 of that Directive is regarded as appropriate information for the purposes of the second indent of Article 19(3) of Directive 2004/39/EC. 2.Member States shall ensure that in respect of units in a collective investment undertaking covered by Directive 85/611/EEC, a simplified prospectus complying with Article 28 of that Directive is regarded as appropriate information for the purposes of the fourth indent of Article 19(3) of Directive 2004/39/EC with respect to the costs and associated charges related to the UCITS itself, including the exit and entry commissions. ASSESSMENT OF SUITABILITY AND APPROPRIATENESS (Article 19(4) of Directive 2004/39/EC) 1.Member States shall ensure that investment firms obtain from clients or potential clients such information as is necessary for the firm to understand the essential facts about the client and to have a reasonable basis for believing, giving due consideration to the nature and extent of the service provided, that the specific transaction to be recommended, or entered into in the course of providing a portfolio management service, satisfies the following criteria: (a)it meets the investment objectives of the client in question; (b)it is such that the client is able financially to bear any related investment risks consistent with his investment objectives; (c)it is such that the client has the necessary experience and knowledge in order to understand the risks involved in the transaction or in the management of his portfolio. 2.Where an investment firm provides an investment service to a professional client it shall be entitled to assume that, in relation to the products, transactions and services for which it is so classified, the client has the necessary level of experience and knowledge for the purposes of paragraph 1(c). Where that investment service consists in the provision of investment advice to a professional client covered by Section 1 of to Directive 2004/39/EC, the investment firm shall be entitled to assume for the purposes of paragraph 1(b) that the client is able financially to bear any related investment risks consistent with the investment objectives of that client. 3.The information regarding the financial situation of the client or potential client shall include, where relevant, information on the source and extent of his regular income, his assets, including liquid assets, investments and real property, and his regular financial commitments. 4.The information regarding the investment objectives of the client or potential client shall include, where relevant, information on the length of time for which the client wishes to hold the investment, his preferences regarding risk taking, his risk profile, and the purposes of the investment. 5.Where, when providing the investment service of investment advice or portfolio management, an investment firm does not obtain the information required under Article 19(4) of Directive 2004/39/EC, the firm shall not recommend investment services or financial instruments to the client or potential client. (Article 19(5) of Directive 2004/39/EC) Member States shall require investment firms, when assessing whether an investment service as referred to in Article 19(5) of Directive 2004/39/EC is appropriate for a client, to determine whether that client has the necessary experience and knowledge in order to understand the risks involved in relation to the product or investment service offered or demanded. For those purposes, an investment firm shall be entitled to assume that a professional client has the necessary experience and knowledge in order to understand the risks involved in relation to those particular investment services or transactions, or types of transaction or product, for which the client is classified as a professional client. (Article 19(4) and (5) of Directive 2004/39/EC) Provisions common to the assessment of suitability or appropriateness 1.Member States shall ensure that the information regarding a clients or potential clients knowledge and experience in the investment field includes the following, to the extent appropriate to the nature of the client, the nature and extent of the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved: (a)the types of service, transaction and financial instrument with which the client is familiar; (b)the nature, volume, and frequency of the clients transactions in financial instruments and the period over which they have been carried out; (c)the level of education, and profession or relevant former profession of the client or potential client. 2.An investment firm shall not encourage a client or potential client not to provide information required for the purposes of Article 19(4) and (5) of Directive 2004/39/EC. 3.An investment firm shall be entitled to rely on the information provided by its clients or potential clients unless it is aware or ought to be aware that the information is manifestly out of date, inaccurate or incomplete. (first indent of Article 19(6) of Directive 2004/39/EC) Provision of services in non-complex instruments A financial instrument which is not specified in the first indent of Article 19(6) of Directive 2004/39/EC shall be considered as non-complex if it satisfies the following criteria: (a)it does not fall within Article 4(1)(18)(c) of, or points (4) to (10) of Section C of to, Directive 2004/39/EC; (b)there are frequent opportunities to dispose of, redeem, or otherwise realise that instrument at prices that are publicly available to market participants and that are either market prices or prices made available, or validated, by valuation systems independent of the issuer; (c)it does not involve any actual or potential liability for the client that exceeds the cost of acquiring the instrument; (d)adequately comprehensive information on its characteristics is publicly available and is likely to be readily understood so as to enable the average retail client to make an informed judgment as to whether to enter into a transaction in that instrument. (Article 19(1) and 19(7) of Directive 2004/39/EC) Member States shall require an investment firm that provides an investment service other than investment advice to a new retail client for the first time after the date of application of this Directive to enter into a written basic agreement, in paper or another durable medium, with the client setting out the essential rights and obligations of the firm and the client. The rights and duties of the parties to the agreement may be incorporated by reference to other documents or legal texts. (Article 19(8) of Directive 2004/39/EC) Reporting obligations in respect of execution of orders other than for portfolio management 1.Member States shall ensure that where investment firms have carried out an order, other than for portfolio management, on behalf of a client, they take the following action in respect of that order: (a)the investment firm must promptly provide the client, in a durable medium, with the essential information concerning the execution of that order; (b)in the case of a retail client, the investment firm must send the client a notice in a durable medium confirming execution of the order as soon as possible and no later than the first business day following execution or, if the confirmation is received by the investment firm from a third party, no later than the first business day following receipt of the confirmation from the third party. Point (b) shall not apply where the confirmation would contain the same information as a confirmation that is to be promptly dispatched to the retail client by another person. Points (a) and (b) shall not apply where orders executed on behalf of clients relate to bonds funding mortgage loan agreements with the said clients, in which case the report on the transaction shall be made at the same time as the terms of the mortgage loan are comminicated, but no later than one month after the execution of the order. 2.In addition to the requirements under paragraph 1, Member States shall require investment firms to supply the client, on request, with information about the status of his order. 3.Member States shall ensure that, in the case of orders for a retail clients relating to units or shares in a collective investment undertaking which are executed periodically, investment firms either take the action specified in point (b) of paragraph 1 or provide the retail client, at least once every six months, with the information listed in paragraph 4 in respect of those transactions. 4.The notice referred to in point (b) of paragraph 1 shall include such of the following information as is applicable and, where relevant, in accordance with Table 1 of to [the Implementing Regulation]: (a)the reporting firm identification; (b)the name or other designation of the client; (c)the trading day; (d)the trading time; (e)the type of the order; (f)the venue identification; (g)the instrument identification; (h)the buy/sell indicator; (i)the nature of the order if other than buy/sell; (j)the quantity; (k)the unit price; (l)the total consideration; (m)a total sum of the commissions and expenses charged and, where the retail client so requests, an itemised breakdown; (n)the clients responsibilities in relation to the settlement of the transaction, including the time limit for payment or delivery as well as the appropriate account details where these details and responsibilities have not previously been notified to the client; (o)if the clients counterparty was the investment firm itself or any person in the investment firms group or another client of the investment firm, the fact that this was the case unless the order was executed through a trading system that facilitates anonymous trading. For the purposes of point (k), where the order is executed in tranches, the investment firm may supply the client with information about the price of each tranche or the average price. Where the average price is provided, the investment firm shall supply the retail client with information about the price of each tranche upon request. 5.The investment firm may provide the client with the information referred to in paragraph 4 using standard codes if it also provides an explanation of the codes used. (Article 19(8) of Directive 2004/39/EC) Reporting obligations in respect of portfolio management 1.Member States shall require investments firms which provide the service of portfolio management to clients to provide each such client with a periodic statement in a durable medium of the portfolio management activities carried out on behalf of that client unless such a statement is provided by another person. 2.In the case of retail clients, the periodic statement required under paragraph 1 shall include, where relevant, the following information: (a)the name of the investment firm; (b)the name or other designation of the retail clients account; (c)a statement of the contents and the valuation of the portfolio, including details of each financial instrument held, its market value, or fair value if market value is unavailable and the cash balance at the beginning and at the end of the reporting period, and the performance of the portfolio during the reporting period; (d)the total amount of fees and charges incurred during the reporting period, itemising at least total management fees and total costs associated with execution, and including, where relevant, a statement that a more detailed breakdown will be provided on request; (e)a comparison of performance during the period covered by the statement with the investment performance benchmark (if any) agreed between the investment firm and the client; (f)the total amount of dividends, interest and other payments received during the reporting period in relation to the clients portfolio; (g)information about other corporate actions giving rights in relation to financial instruments held in the portfolio; (h)for each transaction executed during the period, the information referred to in Article 40(4)(c) to (l) where relevant, unless the client elects to receive information about executed transactions on a transaction-by-transaction basis, in which case paragraph 4 of this Article shall apply. 3.In the case of retail clients, the periodic statement referred to in paragraph 1 shall be provided once every 6 months, except in the following cases: (a)where the client so requests, the periodic statement must be provided every 3 months; (b)in cases where paragraph 4 applies, the periodic statement must be provided at least once every 12 months; (c)where the agreement between an investment firm and a retail client for a portfolio management service authorises a leveraged portfolio, the periodic statement must be provided at least once a month. Investment firms shall inform retail clients that they have the right to make requests for the purposes of point (a). However, the exception provided for in point (b) shall not apply in the case of transactions in financial instruments covered by Article 4(1)(18)(c) of, or any of points 4 to 10 of Section C in to, Directive 2004/39/EC. 4.Member States shall require investment firms, in cases where the client elects to receive information about executed transactions on a transaction-by-transaction basis, to provide promptly to the client, on the execution of a transaction by the portfolio manager, the essential information concerning that transaction in a durable medium. Where the client concerned is a retail client, the investment firm must send him a notice confirming the transaction and containing the information referred to in Article 40(4) no later than the first business day following that execution or, if the confirmation is received by the investment firm from a third party, no later than the first business day following receipt of the confirmation from the third party. The second subparagraph shall not apply where the confirmation would contain the same information as a confirmation that is to be promptly dispatched to the retail client by another person. (Article 19(8) of Directive 2004/39/EC) Additional reporting obligations for portfolio management or contingent liability transactions Member States shall ensure that where investment firms provide portfolio management transactions for retail clients or operate retail client accounts that include an uncovered open position in a contingent liability transaction, they also report to the retail client any losses exceeding any predetermined threshold, agreed between the firm and the client, no later than the end of the business day in which the threshold is exceeded or, in a case where the threshold is exceeded on a non-business day, the close of the next business day. (Article 19(8) of Directive 2004/39/EC) Statements of client financial instruments or client funds 1.Member States shall require investment firms that hold client financial instruments or client funds to send at least once a year, to each client for whom they hold financial instruments or funds, a statement in a durable medium of those financial instruments or funds unless such a statement has been provided in any other periodic statement. The first subparagraph shall not apply to a credit institution authorised under Directive 2000/12/EC in respect of deposits within the meaning of that Directive held by that institution. 2.The statement of client assets referred to in paragraph 1 shall include the following information: (a)details of all the financial instruments or funds held by the investment firm for the client at the end of the period covered by the statement; (b)the extent to which any client financial instruments or client funds have been the subject of securities financing transactions; (c)the extent of any benefit that has accrued to the client by virtue of participation in any securities financing transactions, and the basis on which that benefit has accrued. In cases where the portfolio of a client includes the proceeds of one or more unsettled transactions, the information referred to in point (a) may be based either on the trade date or the settlement date, provided that the same basis is applied consistently to all such information in the statement. 3.Member States shall permit investment firms which hold financial instruments or funds and which carry out the service of portfolio management for a client to include the statement of client assets referred to in paragraph 1 in the periodic statement it provides to that client pursuant to Article 41(1). (Articles 21(1) and 19(1) of Directive 2004/39/EC) 1.Member States shall ensure that, when executing client orders, investment firms take into account the following criteria for determining the relative importance of the factors referred to in Article 21(1) of Directive 2004/39/EC: (a)the characteristics of the client including the categorisation of the client as retail or professional; (b)the characteristics of the client order; (c)the characteristics of financial instruments that are the subject of that order; (d)the characteristics of the execution venues to which that order can be directed. For the purposes of this Article and Article 46, execution venue means a regulated market, an MTF, a systematic internaliser, or a market maker or other liquidity provider or an entity that performs a similar function in a third country to the functions performed by any of the foregoing. 2.An investment firm satisfies its obligation under Article 21(1) of Directive 2004/39/EC to take all reasonable steps to obtain the best possible result for a client to the extent that it executes an order or a specific aspect of an order following specific instructions from the client relating to the order or the specific aspect of the order. 3.Where an investment firm executes an order on behalf of a retail client, the best possible result shall be determined in terms of the total consideration, representing the price of the financial instrument and the costs related to execution, which shall include all expenses incurred by the client which are directly related to the execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order.