Commencing on the 1st of November 2007, new EU rules on trading in financial instruments, called Markets in Financial Instruments Directive (MiFID), will come into force. The main aim of this new directive is to enhance the markets’ transparency, and to increase the level of protection for clients when they trade in financial instruments like currency and interest rate options, interest rate swaps and securities.
This Directive is being adopted in Ireland as well as other countries within the EU. As such, the requirements of the Directive will be implemented by National Irish Bank and Danske Bank Group as a whole.
Client classification
As a consequence of the new legislation, we must classify our clients who want to trade in financial instruments on the basis of the industry of the client, and on the size of the turnover, shareholders’ funds and total assets of the client. According to the directive, clients can be categorised as retail clients, professional clients or eligible counterparties.
The classification will determine the information we provide to ensure that our clients have the best possible protection when buying or selling financial instruments covered by the Directive.
Advisory process
New rules on trading in financial instruments also include specific requirements in terms of the advice that we provide to our clients. The new advisory process requires us to obtain more information from our clients. Depending on the client’s category, we are obliged by the new directive to determine:
- Clients’ knowledge and experience in the investment products to be traded, in order to make sure that our clients understand the risks associated with different types of financial instruments (for retail clients)
- Clients’ financial situation to verify clients’ ability to bear a loss (for retail clients and retail clients treated as professional clients)
- Clients’ investment objectives like time horizon, attitude to risk, and the objective of transactions (for retail clients, retail clients treated as professional clients and professional clients)
Buying or selling financial instruments after 1st November 2007
To summarise the above changes, which will come into force on 1st November 2007, our clients will be asked to provide additional information in order to trade in transactions such as Currency and Interest Rate Options and Interest Rate Swaps. This information is necessary for us to assess clients’ category and to determine the product range suitable for the clients’ investment objectives. Furthermore, clients will be asked to sign the new framework agreement before concluding derivative transactions after the 1st of November 2007.
Further information
If you have questions about the new rules, please contact our Markets Division - telephone no. 01 - 484 4618.