sou · GUB350d2 · 2007-01-01 00:00:00 — The fact that the client has given specific instructions which cover one part or aspect of the order should not be treated as releasing the investment firm from its best execution obligations in respect of any other parts or aspects of the client order that are not covered by such instructions. (58)(63) Dealing on own account with clients by an investment firm should be considered as the execution of client orders, and therefore subject to the requirements under Directive 2004/39/EC and this Directive and, in particular, those obligations in relation to best execution. When the client expressly requests or instructs the firm to execute its order by dealing with him on own account at the price quoted or offered by the firm, the firm should be treated as fulfilling its best execution obligations in respect of price. (59)(64) The obligation to deliver the best possible result when executing client orders applies in relation to all types of financial instruments. However, given the differences in market structures or the structure of financial instruments, it may be difficult to identify and apply a uniform standard of and procedure for best execution that would be valid and effective for all of instrument. Best execution obligations should therefore be applied in a that takes into account the different circumstances associated with the execution of orders related to particular types of financial instruments. For example, transactions involving a customised OTC financial instrument that involve a unique contractual relationship tailored to the circumstances of the client and the investment firm may not be comparable for best execution purposes with transactions involving shares traded on centralised execution venues. (60)For the purposes of ensuring that an investment firm obtains the best possible result for the client when executing a retail client order in the absence of specific client instructions, the firm should take into consideration all factors that will allow it to deliver the best possible result in terms of the total consideration, representing the price of the financial instrument and the costs related to execution. Speed, likelihood of execution and settlement, the size and nature of the order, market impact and any other implicit transaction costs may be given precedence over the immediate price and cost consideration only insofar as they are instrumental in delivering the best possible result to the retail client. (61)(65) It should be considered that an investment firm structures or charges its commissions in a way which discriminates unfairly between execution venues if it charges a different commission or spread to clients for execution on different execution venues and that difference does not reflect actual differences in the cost to the firm of executing on those venues. (62)(66) The provisions of this Directive as to execution policy are without prejudice to the general obligation of an investment firm under Article 21(4) of Directive 2004/39/EC to monitor the effectiveness of its order execution arrangements and policy and assess the venues in its execution policy on a regular basis. (63)(67) This Directive is not intended to require a duplication of effort as to best execution between an investment firm which provides the service of reception and transmission of order or portfolio management and any investment firm to which that investment firm transmits its orders for execution. Accordingly, without derogating from the obligation of the first firm to its client to deliver best execution, it is intended that the first firm should, when transmitting orders to other entities for execution, take all reasonable steps to select entities that are most likely to deliver the best possible result in the execution of those orders. An investment firm which transmits orders to another firm for execution should also monitor the execution quality delivered by the other firm and take the necessary steps to correctensure that any deficiencies when theythat arise are corrected as soon as possible. Subject to the proper fulfilment of these duties, the first firm should be entitled to rely on the ability of the second firm to deliver best execution. (64)(68) The best execution obligation under Directive 2004/39/EC requires investment firms to take all reasonable steps to obtain the best possible result for their clients. The quality of execution, which includes aspects such as the speed and likelihood of execution (fill rate) and the availability and incidence of price improvement, is an important factor in the delivery of best execution. Availability, comparability and consolidation of data related to execution quality provided by the various execution venues is crucial in enabling investment firms and investors to identify those execution venues that deliver the highest quality of execution for their clients. This Directive does not mandate the publication by execution venues of their execution quality data, as execution venues and data providers should be permitted to develop solutions concerning the provision of execution quality data. The Commission should submit a report by on the market-led developments in this area with a view to assessing availability, comparability and consolidation at a European level of information concerning execution quality. [Client order handling] (65)(69) For the purposes of the provisions of this Directive concerning client order handling, the reallocation of transactions should be considered as detrimental to a client if, as an effect of that reallocation, unfair precedence is given to the investment firm or to any particular client. (66)(70) For the purposes of the provisions of this Directive concerning client order handling, client orders should not be treated as otherwise comparable if they are received by different media and it would not be practicable to be treated sequentially. For the further purposes of those provisions, any use by an investment firm of information relating to a pending client order in order to deal on own account in the financial instruments to which the client order relates, or in related financial instruments, should be considered a misuse of that information. However, the mere fact that market makers make use of information relating to pending client orders acquired in the course of their legitimate business as market makers to pursue that business should not in itself be considered as the misuse of information. [Investment advice] (67)(71) Advice about financial instruments given in a newspaper, journal, magazine or any other publication (including by means of the internet), or in any television or radio broadcast, should not be considered as a personal recommendation for the purposes of the definition of investment advice in Directive 2004/39/EC, provided that the giving of investment advice is not the principal purpose of the publication or broadcast. (68)(72) Generic advice about a type of financial instrument is not investment advice for the purposes of Directive 2004/39/EC, because this Directive specifies that, for the purposes of Directive 2004/39/EC, investment advice is restricted to advice on particular financial instruments. However, if an investment firm provides generic advice to a client about a type of financial instrument which it presents as suitable for, or based on a consideration of the circumstances of, that client, and that advice is not in fact suitable for the client, or is not based on a consideration of his circumstances, depending on the circumstances of the particular case, the firm is likely to be acting in contravention of Article 19(1) or (2) of Directive 2004/39/EC. In particular, a firm which gives a client such advice would be likely to contravene the requirement of Article 19(1) to act honestly, fairly and professionally in accordance with the best interests of its clients. Similarly or alternatively, such advice would be likely to contravene the requirement of Article 19(2) that information addressed by a firm to a client should be fair, clear and not misleading. (73)Acts carried out by an investment firm that are preparatory to the provision of an investment service or carrying out an investment activity should be considered as an integral part of that service or activity. This would include, for example, the provision of generic advice by an investment firm to clients or potential clients prior to or in the course of the provision of investment advice or any other investment service or activity. (69)(74) The provision of a general recommendation (that is, one which is intended for distribution channels or the public) about a transaction in a financial instrument or a type of financial instrument constitutes the provision of an ancillary service within Section B(5) of Directive 2004/39/EC, and consequently Directive 2004/39/EC and its protections apply to the provision of that recommendation. (70)(75) , established by Commission Decision 2001/527/EC has been consulted for technical advice. (71)(76) The measures provided for in this Directive are in accordance with the opinion of , HAS ADOPTED THIS DIRECTIVE: 1.This Directive lays down the detailed rules for the implementation of Article 4(1)(4) and 4(2), Article 13(2) to (8), Article 18, Article 19(1) to (6), Article 19(8), and Articles 21, 22 and 24 of Directive 2004/39/EC. 2.Chapter II and Sections 1 to 46 and 8 of Chapter III and, to the extent they relate to those provisions, Chapter I and Section 9 of Chapter III and Chapter IV of this Directive shall apply to shall apply to management companies in accordance with Article 5(4) of Council Directive 85/611/EEC of on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)5. For the purposes of this Directive, the following definitions shall apply: OJ L 375, 31.12.1985, p. distribution channels means distribution channels within the meaning of Article 1(7) of Commission Directive 2003/125/EC;6 (2)durable medium means any instrument which enables a client to store information addressed personally to that client in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored; (3)relevant person in relation to an investment firm, means any of the following: (a)a director, partner or equivalent, manager or tied agent of the firm; (b)a director, partner or equivalent, or manager of any tied agent of the firm; (c)an employee of the firm or of a tied agent of the firm, as well as any other natural person whose services are placed at the disposal and under the control of the firm or a tied agent of the firm and who is involved in the provision by the firm of investment services and activities; (d)a natural person who is directly involved in the provision of services to the investment firm or to its tied agent under an outsourcing arrangement for the purpose of the provision by the firm of investment services and activities; (4)financial analyst means a relevant person who produces the substance of investment research; (5)group, in relation to an investment firm, means the group of which that firm forms a part, consisting of a parent undertaking, its subsidiaries and the entities in which the parent undertaking or its subsidiaries hold a participation, as well as undertakings linked to each other by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC7 on consolidated accounts; (6)outsourcing means an arrangement of any form between an investment firm and a service provider by which that service provider performs a process, a service or an activity which would otherwise be undertaken by the investment firm itself; person with whom a relevant person has a family relationship means any of the the spouse of the relevant person or any partner of that person considered by national law as equivalent to a spouse; a minor or adult child or stepchild of the relevant person; any other relative of the relevant person who has shared the same household as that person for at least one year on the date of the personal transaction 6OJ L 339, 24.12.2003, p. 7OJ No L 193, , p.1. securities financing transaction has the meaning given in [the Implementing senior management means the person or persons who effectively direct the business of the investment firm as referred to in Article 9(1) of Directive 2004/39/EC. Provision of information in a durable medium Conditions applying to the provision of information Where, for the purposes of this Directive, information is required to be provided in a durable medium, Member States shall permit investment firms to provide that information by means of a website, provided that the following conditions are satisfied: (a)informationin a form other than on paper only if:the person to whom the information is to be provided, when offered the choice between information on paper or in another durable medium and information by means of a website, must specifically choosechooses the provision of the information in that form;. (b)that person2. Where, pursuant to Article 29, 30, 31, 32, 33 or 46(2) of this Directive, an investment firm provides information to a client by means of a website and that information is not addressed personally to the client, Member States shall ensure that the following conditions are satisified: (a)the client must specifically consent to the provision of information in that form; (b)the client must be notified of the address of the website, and the place on the website where the information may be accessed; (c)the information must be provided up to date; (d)the information must be accessible continuously by means of that website throughout a for the period sufficient to ensure that the person to whom the information is to be provided has a reasonable opportunity to inspect and reproduce itremains current. Additional requirements on investment firms in certain cases 1.Member States may retain or impose requirements additional to those in this Directive only in exceptional cases where such requirements are objectively justified and proportionate so as to address specific risks to investor protection or to market integrity that are not fully addressed by this Directive, and provided that one of the following conditions is met: (a)the specific risks addressed by the requirements are of particular importance in the circumstances to the market structure of that Member State; (b)the requirement addresses risks or issues that emerge or become evident after the date of application of this Directive and that are not otherwise regulated by or under Community measures. 2.Any requirements imposed under paragraph 1 shall not restrict or otherwise affect the rights of investment firms under Articles 31 and 32 of Directive 2004/39/EC. 3.Member States shall notify to the Commission: (a)any requirement which it intends to retain in accordance with paragraph 1 before the date of entry into force of this Directive; and (b)any requirement which it intends to impose in accordance with paragraph 1 at least one month before the date appointed for that requirement to come into force. In each case, the notification shall include a justification for that requirement. (Article 13(2) to (8) of Directive 2004/39/EC) 1.Member States shall require investment firms to comply with the following requirements: (a)to establish, implement and maintain decision-making procedures and an organisational structure which clearly and in documented specifies reporting lines and allocates functions and responsibilities; (b)to ensure that their relevant persons are aware of the procedures which must be followed for the proper discharge of their responsibilities; (c)to establish, implement and maintain adequate internal control mechanisms designed to secure compliance with decisions and procedures at all levels of the investment firm; (d)to employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them; (e)to establish, implement and maintain effective internal reporting and communication of information at all relevant levels of the investment firm; (f)to maintain adequate and orderly records of their business and internal organisation; (g)to ensure that the performance of multiple functions by their relevant persons does not and is not likely to prevent those persons from discharging any particular function soundly, honestly, and professionally. Member States shall ensure that, for those purposes, investment firms take into account the nature, scale and complexity of the business of the firm, and the nature and range of investment services and activities undertaken in the course of that business. 2.Member States shall require investment firms to establish, implement and maintain systems and procedures that are adequate to safeguard the security, integrity and confidentiality of information, taking into account the nature of the information in question. 3.Member States shall require investment firms to establish, implement and maintain an adequate business continuity policy aimed at ensuring, in the case of an interruption to their systems and procedures, the preservation of essential data and functions, and the maintenance of investment services and activities, or, where that is not possible, the timely recovery of such data and functions and the timely resumption of their investment services and activities. 4.Member States shall require investment firms to establish, implement and maintain accounting policies and procedures that enable them, at the request of the competent authority, to deliver in a timely to the competent authority financial reports which reflect a true and fair view of their financial position and which comply with all applicable accounting standards and rules. 5.Member States shall require investment firms to monitor and, on a regular basis, to evaluate the adequacy and effectiveness of their systems, internal control mechanisms and arrangements established in accordance with paragraphs 1 to 4, and to take appropriate measures to address any deficiencies. (Article 13(2) of Directive 2004/39/EC) 1.Member States shall ensure that investment firms establish, implement and maintain adequate policies and procedures designed to detect any risk of failure by the firm to comply with the provisions of national law transposing its obligations under Directive 2004/39/EC, as well as the associated risks, and put in place adequate measures and procedures designed to minimise such risk and to enable the competent authorities to exercise their powers effectively under that Directive. Member States shall ensure that, for those purposes, investment firms take into account the nature, scale and complexity of the business of the firm, and the nature and range of investment services and activities undertaken in the course of that business. 2.Member States shall require investment firms to maintain a permanent and effective compliance function which operates independently and which has the following responsibilities: (a)to monitor and, on a regular basis, to assess the adequacy and effectiveness of the measures and procedures put in place in accordance with the first subparagraph of paragraph 1, and the actions taken to address any deficiencies in the firms compliance with its obligations; (b)to advise and assist the relevant persons responsible for carrying out investment services and activities to comply with the firm's obligations under Directive 2004/39/EC. 3.In order to enable the compliance function to discharge its responsibilities properly and independently, Member States shall require investment firms to ensure that the following conditions are satisfied: (a)the compliance function must have the necessary authority, resources, expertise and access to all relevant information; (b)a compliance officer must be appointed and must be responsible for the compliance function and for any reporting as to compliance required by Article 9(2); (c)the relevant persons involved in the compliance function must not be involved in the performance of services or activities they monitor; (d)the method of determining the remuneration of the relevant persons involved in the compliance function must not compromise their objectivity and must not be likely to do so. However, an investment firm shall not be required to comply with point (c) or point (d) if it is able to demonstrate that in view of the nature, scale and complexity of its business, and the nature and range of investment services and activities, the requirement under that point is not proportionate and that its compliance function continues to be effective. (second subparagraph of Article 13(5) of Directive 2004/39/EC) 1.Member States shall require investment firms to take the following actions: (a)to establish, implement and maintain adequate risk management policies and procedures which identify the risks relating to the firms activities, processes and systems, and where appropriate, set the level of risk tolerated by the firm; (b)to adopt effective arrangements, processes and mechanisms to manage the risks relating to the firms activities, processes and systems, in light of that level of risk tolerance; (c)to monitor the following: (i)the adequacy and effectiveness of the investment firms risk management policies and procedures; (ii)the level of compliance by the investment firm and its relevant persons with the arrangements, processes and mechanisms adopted in accordance with point (b); (iii)the adequacy and effectiveness of measures taken to address any deficiencies in those arrangements and procedures, including failures by the relevant persons to comply with such arrangements or follow such procedures. 2.Member States shall require investment firms, where appropriate and proportionate in view of the nature, scale and complexity of their business and the nature and range of the investment services and activities undertaken in the course of that business, to establish and maintain a risk management function that operates independently and out the following tasks: (a)implementation of the policy and procedures referred to in paragraph 1; (b)provision of reports and advice to senior management in accordance with Article 9(2). Where an investment firm is not required under the first sub-paragraph to maintain a risk management function that functions independently, it must nevertheless be able to demonstrate that the policies and procedures which it is has adopted in accordance with paragraph 1 satisfy the requirements of that paragraph and are consistently effective. (second subparagraph of Article 13(5) of Directive 2004/39/EC) Member States shall require investment firms, where appropriate and proportionate in view of the nature, scale and complexity of their business and the nature and range of investment services and activities undertaken in the course of that business, to establish and maintain an internal audit function which is separate and independent from the other functions and activities of the investment firm and which has the following responsibilities: (a)to establish, implement and maintain an audit plan to examine and evaluate the adequacy and effectiveness of the investment firm's systems, internal control mechanisms and arrangements; (b)to issue recommendations based on the result of work carried out in accordance with point (a); (c)to verify compliance with those recommendations; (d)to report in relation to internal audit matters in accordance with Article 9(2). (Article 13(2) of Directive 2004/39/EC) Responsibility of senior management