The Packaged Retail and Insurance-based Investment Products Regulation - EU No 1286/2014 (“PRIIPs Regulation” or “PRIIPs”) became applicable on 1 January 2018.
A PRIIP is defined as any investment where the amount repayable to the investor is subject to fluctuations because of exposure to reference values. PRIIPs include ETFs, options, futures, CFDs, structured products, etc.
The Regulation requires product manufacturers to create Key Information Documents (KIDs) and persons advising or selling PRIIPs to provide retail investors based in the European Economic Area (EEA) with KIDs to enable those investors to better understand and compare products. The UK Financial Conduct Authority (FCA) has equivalent requirements for UK residents.
As a broker, IBKR is required to block trading in a PRIIP if a KID is not available.
The objectives of the PRIIPs Regulation.
Since the financial crisis of 2008, one of the main objectives of the European Commission has been to increase consumer protection and rebuild confidence in financial markets.
The Regulation specifies that the Key Information Document (KID) must be prepared in a standardised format.
By defining a standard format and content for the KID, the Regulation aims to:
Ensure that the information provided is complete and comparable between similar products in order to help investors make informed investment decisions.
Improve transparency and increase confidence in the retail investment market.
What is a KID?
The KID is a 3-page document that contains important details of the product including general description, cost, risk reward profile and possible performance scenarios.
Who is the regulation applicable to?
The Regulation applies to both PRIIPs manufacturers and distributors. The responsibility to create and maintain the document falls to the product manufacturer. However, any distributor or financial intermediary that sells or provides advice about PRIIPs to a retail investor, or receives a buy order for a PRIIP from a retail investor, must provide the investor with a KID. This also applies to execution-only, online environments.
Who should receive a KID?
Retail investors domiciled in the EEA and the UK should receive a KID prior to investing in a PRIIP. If no KID is available from the manufacturer, the PRIIP will be restricted from trading for EEA and UK retail clients.
Generally KIDs must be provided in an official language of the country in which a client is resident.
However, clients of IBKR have agreed to receive communications in English, and therefore if a KID is available in English all EEA and UK clients can trade the product regardless of their country of residence.
If a KID is not available in English, but one is available in another language, German for example, the PRIIP can only be traded by retail clients who are citizens of, or resident in countries where that language is an official language, in this example Germany, Austria, Belgium, Luxembourg or Liechtenstein.
Special Case – US ETFs
U.S. clients are not impacted by PRIIPs, so the issuers of U.S. listed ETFs do not as a rule create KIDs. This means that EEA and UK Retail clients may not purchase the product. Clients nevertheless have several options:
Many US ETF issuers have equivalent ETFs issued by their European entities. European-issued ETFs have KIDs and are therefore freely tradable.
Clients can trade most large US ETFs as CFDs. The CFDs are issued by IBKRs European entities and as such meet all KID requirements.
Clients may be eligible for re-classification as a professional client, for whom KIDs are not required.
We categorize all individual clients as “Retail” by default as this affords clients the broadest level of protection afforded by MiFID. Client who are categorised as “Professional” do not receive the same level of protection as “Retail” but are not subject to the KIDs requirement. As defined under MiFID II rules, “Professional” clients include regulated entities, large clients and individuals who have asked to be re-categorised as “elective professional clients” and meet the MiFID II requirements based on their knowledge, experience and financial capability.
We provide an online step-by-step process that allows “Retail” to request that their categorisation be changed to “Professional". The qualifications for re-categorisation along with the steps for requesting that one’s categorisation be considered are outlined here or, to directly apply for a change in categorisation, the questionnaire is available in the Client Portal/Account Management.
Implications for Interactive Brokers:
In order to meet the PRIIPs Regulation, where required, IB UK will provide KIDs electronically by means of a website (“PRIIPs KID Landing Page”).
Where can I find the PRIIPs KID Landing Page?
The KIDs can be accessed from our designated PRIIPs KID Landing Page. There are three different ways you can find the KIDs. They are available through the IBKR Trader Workstation (“TWS”), the IBKR website and Client Portal.
1. Find Through TWS
Log into TWS
Right click on the symbol of the product for which you want the KID.
Under Financial Instrument Info select Details.
From the Contract Details page, you can select the PRIIPs KID link. This will take you to our PRIIPs KID Landing Page in Client Portal
2. Find KIDs through the our website:
Open the Trading tab and select Exchange Listings.
From there, select Product Listings. Select the derivative type, region and exchange of the product for which you would like to find the contract information.
Select the product you would like to see the KID of, which will take you to the Contract Details page.
From the Contract Details page, as above, you can select the PRIIPs KID link, which will take you to our PRIIPs KID Landing Page in Client Portal.
3. Find KIDs through Client Portal:
Log into Client Portal.
Click the Help (?) icon followed by Support Center.
In the Information & Tools section, select PRIIPs Kid, which will take you to our PRIIPs KID Landing Page.
Can I potentially get exposure to a US ETF/other PRIIPs restricted product through a CFD?
An investor could potentially get exposure to a U.S. ETF or other PRIIPs restricted product when trading a CFD (Contract for Difference) as some CFDs are designed to track the performance of underlying assets, including ETFs and other PRIIPs products.
If an investor trades a CFD that is designed to track the performance of a U.S. ETF or other PRIIPs product, the investor may be indirectly investing in that underlying asset. This is because the CFD's value is based on the value of the underlying asset, and any gains or losses in the value of the underlying asset will be reflected in the value of the CFD.