The bank has an obligation to take all reasonable steps to achieve the best result for the client when the bank executes the client’s order in to financial instruments. This usually means, among other things, that the client’s order is submitted to the most liquid marketplace for the instrument in question.
Key words and terms
A new regulation often means new words and terms. The new EU legislation regulation is no exception. We have therefore summarised the most important ones here. If you would like to know more about the regulation, you can visit our website or contact your adviser.
Execution only means that the bank is able to execute a client’s transaction without performing an appropriateness assessment (see Appropriateness Assessment). This can only be done for non-complex financial instruments and aside from receiving investment advice.
Shares and share derivatives, interest-bearing securities and interest rate derivatives and combinations of instruments, such as share index bonds, and fund units are all examples of commonly traded financial instruments. Instruments are divided into complex and non-complex instruments, depending on their structure, risk, etc.
From 1 November 2007, companies are in principle covered by the same client protection as private individuals. Companies are also classified as clients, for example, and an assessment is made of whether the company’s investments in financial instruments are appropriate for the company. Companies are so-called professional clients to a greater extent than private individuals.
The bank may give remuneration to a third party for its brokering of the bank’s own products. Similarly, the bank may receive remuneration from a third party when the bank brokers its products to a client. The client may also be required to pay remuneration directly to the broker of a third party’s products. These kinds of remuneration are examples of what the regulation calls inducements.
A retail client usually means a client who does not work with financial instruments in a professional capacity or invest in them very frequently. Retail clients have the highest level of client protection.
The bank offers the client the opportunity for advice on investments in financial instruments. This should be tailored to the client’s knowledge and experience, financial situation and investment objectives. In respect of private clients, the term corresponds in principle to what was previously called financial advice.
Investment services means the services included in the bank’s authorization to operate as an investment firm, such as executing orders and providing investment advice with regard to financial instruments.
An eligible counterparty is a client that is a bank, a financial institution or other institution equivalent to a bank.
According to MiFID, the bank must divide its clients into different categories: retail clients, professional clients and so-called eligible counterparties. The group to which a client belongs is determined by the client’s knowledge and experience with regard to trading in financial instruments. The greatest protection is provided to retail clients.
When receiving investment advice and trading with financial instruments through the bank, the client is covered by client protection. The scope of this protection depends on whether the client is a retail client or a professional client or a so-called eligible counterparty. A retail client, which is usually a client who does not work with securities in a professional capacity or invest in them very frequently, has the strongest protection. As part of this client protection, when providing advice the bank must inform the client of the risks involved in the investment.
This term refers to financial instruments that are classified as complex under MiFID, taking into account the instrument’s structure and risk, etc. The bank must perform an appropriateness assessment in relation to orders in such instruments or a suitability assessment in relation to investment advice. Derivative financial instruments are an example of financial instruments that are generally considered to be complex.
When providing advice, the bank, together with the client, makes an assessment of whether a certain type of investment in financial instruments is suitable for the client. This assessment is guided by the client’s knowledge and experience, financial situation and investment objectives.
This abbreviation refers to the EU “Markets in Financial Instruments Directive”. This directive has been incorporated into Swedish law through the Swedish Securities Markets Act (2007:528) which applies as of 1 November 2007.
This term refers to financial instruments that are classified as non-complex, taking into account the instrument’s structure and risk, etc. Such instruments can be traded execution only under certain circumstances. Listed shares are an example of financial instruments that are generally considered to be non-complex.
For transactions that have not been preceded by investment advice, the bank performs an assessment of whether the transaction is appropriate for the client, based on the client’s knowledge and experience of the financial instrument in question. An assessment of appropriateness is not performed, however, in relation to non-complex financial instruments. In this case, the transaction takes place as execution only instead.
This is usually a client who works with securities in a professional capacity or invests in them very frequently.
This may be a fund broker or another entity that works in a professional capacity with transactions in financial instruments.
They are covered by client protection, but this is not as extensive as for a retail client.
This term is introduced in MiFID and corresponds to the previous terms ‘authorised stock exchange’ or ‘authorised marketplace’.
Advice means when a client receives advice from an adviser at the bank about savings and investment products, funds, shares and other financial instruments.
Advice may be provided both in person and by telephone. See Investment advice for details of the content of the advice.
See Financial instruments above.
This is an umbrella term for investment services and certain ancillary services.