MiFID II

About MiFID II

Dear customers,
we would like to inform you about the impacts of new regulatory rules, namely of the Directive 2014/65/EU on markets in financial instruments (MiFID II), which was implemented into the Act No. 256/2004 Coll. (Capital Markets Undertakings Act), the Regulation (EU) 600/2014 on markets in financial instruments (MiFIR) and the Regulation (EU) 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPS).

Komerční banka, a.s. (hereinafter “KB”) made changes in some contractual documents, rules and processes to act in compliance with the above-mentioned regulatory rules. The changes that these rules are introducing that we consider to be the most important for you are described below. They concern mainly the following areas:

What are the changes about

MiFID II regulation requires an amendment of order execution policy related to contracts on securities as well as contracts related to financial markets.

You can access the documents by clicking the links below:

Unless you state otherwise, we assume your consent with these rules. You also agree, by placing an order or executing a trade after January 3, 2018, that KB may place orders outside of the regulated market, multilateral trading facility or organized trading facility if such an order execution is permitted by these rules.

KB published the list of execution venues in compliance with regulatory requirements. This list will be updated continuously. Every year, KB shall publish the list of five execution venues that are the most important based on the traded volumes as well as the analysis of the trade execution quality at these execution venues.

MiFID II regulation requires an amendment of information provided to customers before investment services are provided to them. Based on this requirement, KB amended the document below to provide you with all relevant information:

Risk description of investment instruments for individual categories of clients:

The regulations require KB (a provider of investment services) to record all electronic and telephone communication related to receiving and transmitting orders and as well as trading on own account. In order to comply with the requirements of regulations and regulatory authorities, KB is obliged to record all electronic and phone communication of relevant KB employees participating in providing investment services (Investment banking, Private banking, some job positions of relationship managers within the distribution network and Call center). The communication related to deal execution or providing investment services must be recorded even if no deal is executed or service provided.

The communication may be conducted through landlines, cell phones, email communication and communication via other electronic devices (Thompson Reuters, Bloomberg or ICE chat, among others). KB is required to archive the communication for five years, or seven years if the regulatory authority requires so.

The regulation recognises three categories of customers: an eligible counterparty, a professional customer and a customer that is not professional. A different level of protection applies to each category.

You can find your category in your contract or you may ask your relationship manager. More information about the categorization of clients, the level of protection provided within each category and the possibility of switching the category is available in the document “Information on investment services and instruments”.

According to MiFID II, KB may act as an investment product manufacturer (such as when trading in financial markets) and/or a distributor of investment products (such as when distributing investment funds or products of Private banking). KB as a product manufacturer/distributor is required to specify a target market based on criteria defined by the regulatory authorities, i.e. KB is required to define a set of clients to whom it may offer a certain product. Based on this requirement, KB will collect more information from customers beyond the information collected so far for determination of the appropriateness or suitability of a product. This newly collected information will enable KB to assess whether the customer belongs to the appropriate target market of a specific product.

KB may receive or provide monetary or non-monetary inducements while selling some investment products or providing some investment services. These inducements serve to enhance the quality of services provided. The acceptance of such inducements is not in conflict with KB’s obligation to act in the best interest of the client. KB will inform you about these inducements ex ante as well as ex post in order to keep you informed about all inducements related to the investment service provided or product sold.

Based on the regulatory requirements, KB will inform you about costs and charges related to services provided and investment instruments by an agreed-upon manner. The information on costs related to an investment service may be provided, for instance, in a Pricelist, a term sheet, a written order, by electronic means, by telephone or on the internet website www.kb.cz.

The information on costs, fees and inducements related to investment funds Amundi distributed by KB will be available in the annex of the Key information document (KID).

The information on the costs and charges related to financial market products and investment services can be found here.

MiFID II regulation has changed rules related to investment research. In case you are a natural person or a legal person not providing investment services, these MiFID II requirements do not apply to you. You will still receive our analyses for free and you will be able to register on our website without the need to pay any fees.

In case your company resides in EEA (European economic area) and provides investment services including asset management or independent investment advisory according to MiFID II, you are obliged to pay for the service from your own resources or from a separate account which is funded by dedicated fees paid by your clients. To comply with the regulatory requirements, KB applies charges for the services provided to the above-described entities, starting January 3, 2018. It is, therefore, necessary for you to enter a contract with KB on the provision of investment research services. In case MiFID II regulation applies to you, please let us know whether you wish to receive our investment research on research@kb.cz. Shall you be interested, we will sign a contract with you.

MiFID II / MiFIR regulation establishes an obligation to report all transactions with investment instruments to regulatory authorities. For the purposes of reporting, all legal entities and natural persons - entrepreneurs acting on behalf of their business activity must be identifiable by a so-called LEI code. LEI (Legal Entity Identifier) is a unique international identification code in a twenty-character alphanumeric form.

MiFID II reporting is not performed by clients but by securities dealers. The client has an obligation to have valid LEI code.

All legal entities and natural persons (entrepreneurs) must have LEI in case they trade in:

  • Financial derivatives (e.g. forwards, swaps or options) - as soon as possible because obligatory reporting according EMIR regulation also applies,
  • Investment instruments traded on trading venue or outside a trading venue, starting from January 3, 2018, according to MiFID II reporting requirements.

This obligation does not apply to:

  • Natural persons,
  • Natural persons - entrepreneurs for activities unrelated to their business (the contract is based on birth number not an identification number),
  • Spot FX transactions, deposits and loans, as these are not investment instruments,
  • Trades in shares of open investment funds as these are not traded on a trading venue,
  • Transfers or holdings of securities.

The validity period of LEI is one year. After that it is necessary to renew it. The LEI code remains the same when renewed. The issuance of LEI as well as annual renewal is subject to fees.

How to obtain LEI:

LEI is provided by authorised institutions – in the Czech Republic, it is Central Securities Depository Prague (hereinafter as “CSDP”). The list of other issuers abroad is available at https://www.leiroc.org/lei/how.htm.

You can easily apply for LEI at CSDP (www.cdcp.cz) by filling in an online form followed by payment of the fee. You will receive LEI within few days. You will be reminded every year by the CSDP when the renewal fee is due.

More information on LEI provision is available at https://www.cdcp.cz/index.php/en/lei-code-assignment.

How to communicate LEI to KB?

If you are a local legal entity with ICO or a natural person – entrepreneur, you do not have to notify KB about your LEI. We will find your LEI automatically in the public register. If you are a foreign legal entity, please send your LEI to your relationship manager.

If you trade in derivatives, please send your LEI to emir@kb.cz.

It will not be possible to trade without LEI

We would like to inform you that starting from January 3, 2018, KB may decline trading in derivatives and securities with legal entities as well as to natural persons – entrepreneurs without a valid LEI.

KB uses Bloomberg services for the purposes of transaction reporting.

The rules for identification and management of conflict of interests have been enhanced. KB would like to inform you about following measures that have been undertaken:

  1. Effective procedures to limit or control the exchange of information among persons who perform activities bearing the risk of conflict of interests, if the exchange of the information could harm interests of one or more customers (“Chinese walls“),
  2. Independent supervision of persons whose main function is performing activities on behalf of customers or providing services to customers, if the interests of these customers might be in conflict, including the cases when the persons represent different interests (including interests of their company) that might be in conflict,
  3. Principles and procedures in the area of employees’ remuneration focused on the conflict of interest management and adherence to the code of conduct when dealing with clients,
  4. Measures taken to eliminate or minimalize inappropriate influence in the course of providing investment or ancillary services or activities,
  5. Measures taken to eliminate or control simultaneous or sequential involvement of persons into investment or ancillary services or activities, if such involvement is in contradiction to proper conflict of interest management.

A systematic internaliser is an investment firm which, on an organised, frequent, systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system. This is a situation when an investment firm executes clients’ orders on own account and, therefore, does not transfer the orders to an execution venue.

KB decided not to become (opt-in) a systematic internaliser starting from January 3, 2018. In case KB will meet the conditions for systemic internalisation, KB will disclose such information to the regulatory body and will comply with the requirements related to pre-trade and post-trade transparency.

The management of complaints related to providing investment services according to MiFID II follows the same procedures as any other complaint in KB. More information is available at Complaints and claims resolution.

Based on MiFID II requirements, KB appointed a person with sufficient expertise and competence who is responsible for supervising the adherence to regulatory obligations in the area of customers’ assets protection.

DOCUMENTS TO MIFID

Here you will find all the necessary documents explaining the MiFID regulation.