Präsentationtitel | | Seite 1 Conduct of Business Rules for Intermediaries

Präsentationtitel | | Seite 2 MiFID Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments Transposed into German law and in force since 1 Nov 2007 Investor protection through conduct of business rules and organisational requirements for investment firms No paternalistic approach but allowing clients responsible decisions on well informed basis authorisation and ongoing supervision of investment firms fair and efficient markets (trading venues) and investment firms in the EU through increased competion Client may ignore information, fail to compare, save on qualified advice, take unreasonable decisions

Präsentationtitel | | Seite 3 General Conduct of Business Rules An investment firm shall act honestly, fairly and professionally in accordance with the best interests of its clients No selling of financial instruments, supply only in the framework of an investment service reception/transmission, execution of orders, dealing on own account, portfolio management, investment advice, MTF etc. - Service provider has to grant clients‘ interests preference to his own economic interests - Avoid conflicts of interests - Disclose unavoidable conflicts of interests

Präsentationtitel | | Seite 4 General Conduct of Business Rules Minimum requirements for information and marketing 1.All information, including marketing communications, addressed by the investment firm to clients or potential clients shall be fair, clear and not misleading 2.Marketing communications should be clearly identifiable 3.Investment research, which does not fulfil organisational requirements, has to be labelled as marketing communication

Präsentationtitel | | Seite 5 Fair information 1.Understandable for clients, no contradictions 2.Balance: benefits – risks 3.No „hiding“ of relevant information or warnings 4.Comparisons of financial instruments by significant criteria 5.Performance information No historical emphasis Historical simulations with relevant data Influence of fees and commissions 6.Warning with information on taxes 7.No marketing with „BaFin-seal“

Präsentationtitel | | Seite 6 General conduct of business rules Duties to inform beforehand 1.In time, understandable, where appropriate standardised 2.About the firm, types of financial instruments, investment strategies, execution venues, costs 3.Appropriate to Inform about types and risks of transactions Prepare investment decision

Präsentationtitel | | Seite 7 General conduct of business rules Suitability test investment advice, portfolio management 1.Obtain information about Client‘s knowledge, experience in investment field Investment objectives (duration, purpose, readyness to assume risk) Financial situation (regular income/expenses, assets) 2.Test: transaction envisaged is Comprehensible regarding risks involved Consistent with investment objectives and fin. situation 3.Otherwise: prohibition to advise

Präsentationtitel | | Seite 8 General conduct of business rules Appropriateness test other investment services 1.Obtain information about Client‘s knowledge, experience in investment field 2.Test: transaction envisaged is comprehensible for client regarding risks involved 3.Otherwise: warning Transaction/investment service inappropriate or Appropriateness test impossible No prohibition to execute orders

Präsentationtitel | | Seite 9 General conduct of business rules Direct execution no appropriateness test, if 1.Execution of orders or transmission of orders 2.Client‘s initiative + informed about inapplicable test 3.Non-complex financial instruments: Shares traded on regular markets Debt instruments without derivative, UCITS Comprehensible information publicly available Regular opportunity to sell at fair rates No additional obligations for clients

Präsentationtitel | | Seite 10 Reporting obligations 1.Executed orders or transaction under portfolio management 2.Promptly after execution 3.„in due form“ durable medium 4.Detailed requirements if retail clients involved: name of firm/client, transaction time/venue, order type/size, unit price, total consideration, commissions, expenses, client‘s responsabilities, own-name transaction of investment firm 5.In respect of portfolio management at least every six months: content of portfolio, value of portfolio and each financial instrument, performance, costs, dividends/interests, if required each transaction General conduct of business rules

Präsentationtitel | | Seite 11 Classification of clients Client Natural or legal person Including potential client Reclassification possible Organisational arrangements of firm Retail clients Highest level of protection Professional clients No testing of Experience and knowledge Ability to assume risks Eligible counterparties No obligations regarding Information/marketing Appropriateness test Order handling Inducements Best execution

Präsentationtitel | | Seite 12 Professional clients „Born“ professionals investment firms UCITs insurance companies public (int.) institutions large undertakings: 2 out of 3 20 mill. € balance sheet total 40 mill. € net turnover 2 mill. € own funds Optional professionals ageement client/investment firm warning experience, knowledge all or certain types of transactions 2 out of 3 criteria: in past year in avarage 10 large transact./quarter portfolio > € 1 year relevant professional experience

Präsentationtitel | | Seite 13 Legal action of private associations Consumer or professional organisations can 1.Demand omission of infringement of consumer protection laws from investment firms 2.Demand data of investment firms in question from post or telecommunication companies 3.File an action at court 4.Publish judgement and name of investment firm

Präsentationtitel | | Seite 14 Best execution I. Applicable to „execution of client orders“ II. Analogous application to 1.Portfolio management 2.Reception and transmission of orders III. No application to eligible counterparties

Präsentationtitel | | Seite 15 Best execution „all appropriate arrangements for best results“ in particular execution policy: Annual review All relevant criteria for best execution: -Price of financial instrument -All execution costs -Duration and probability of execution -Clearing and settlement -Type and size of order Assess criteria by parameters of: -The client, the order, the financial instrument, the execution venue

Präsentationtitel | | Seite 16 Best execution Execution policy 1.Execution venue for each type of financial instrument: regulated market, MTF, systematic internaliser, Market Maker 2.Crucial factor for choice of execution venue 3.At least execution venue for constant best execution 4.Best possible result takes into consideration total costs: = Price of financial instrument + all execution costs (clearing and settlement)

Präsentationtitel | | Seite 17 Best execution Clients to be informed about: Execution policy Changes of execution policy Preference and consequences of client‘s instructions Execution outside regulated markets/MTF (+agreement) Compliance with execution policy (on request)

Präsentationtitel | | Seite 18 Best execution  Execution of each order according to execution policy Reporting on request of client  No obligation to obtain best result on case by case basis  Preference of client‘s instruction according to its scope  Prohibition to discriminate execution venues by unjustified commissions

Präsentationtitel | | Seite 19 Execution through another firm With respect to eligible counterparties: No best execution requirement Execution through medium of another firm = Transmission of client order, not in name of firm 1 reception/transmission of orders, portfolio management No obligation to check client‘s details and instructions No liability for advice of firm 1 C firm 1 firm 2

Präsentationtitel | | Seite 20 Client order handling Handling of orders in the best interest of client: 1.Promptly, fairly with respect to own orders/other clients 2.Generally in chronological order 3.Correct booking of funds and financial instruments 4.Pooling of orders not to the disadvantage of client 5.Confidentiality of unexecuted orders 6.Information about Relevant problems with execution Pooling, additional risks 7.Unexecuted limit orders with respect to shares traded on reg. Markets to be disclosed or sent to regulated markets/MTF

Präsentationtitel | | Seite 21 Inducements Inducement= commission, fee, monetary benefit Prohibition of inducements from/to third parties, unless 1.Quality of investment service enhanced assumed if investment advice is unbiased 2.Client‘s interests are not at risk e.g. if fees are „necessary“ 3.Existence, type, amount of inducement was disclosed beforehand

Präsentationtitel | | Seite 22 Record keeping generally: all records necessary for supervision individual responsability of firms traceability (organisational arrangements) explicitly: Recording of executed orders Framework agreement with client Client details, classification Conflicts of interests, investment advice (protocol) Review of best execution policy Organisational arrangements, reporting to management

Präsentationtitel | | Seite 23 Record keeping To be retained: at least 5 years conditions of business connection for its duration On a durable medium: Access at any time Any relevant step retraceable Protection against manipulation For clients: document, any readable form Paper, unless otherwise agreed and appropriate General information on the internet, if appropriate with respect to business type and period of availability

Präsentationtitel | | Seite 24 Organisational requirements I.General obligations in line with proportionality  Proper organisation of business  Compliance with all relevant legal requirements  Responsibility of management  Risk management  Adequate resources of personnel and material  Emergency plan

Präsentationtitel | | Seite 25 Organisational requirements II. Special obligations 1.Policy, resources, means to comply with all legal requirements independent compliance type, scope, complexity of bus. 2.Arrangements for continuity and regularity of business 3.Arrangements for detection of conflicts of interests firm, personnel, firm with close links client or client client prevention of damage to client‘s interests 4.Effective, transparent, prompt complaint handling 5.Annual compliance report to management 6.Constant control and adjustment of organisation

Präsentationtitel | | Seite 26 Organisational requirements III. Outsourcing Performance of relevant processes by third parties Arrangements against inappropriate additional risk No impairment of business organisation No delegation of management‘s resposibilities and tasks No change to client relationship No adverse effects to supervision Written outsourcing agreement: -Rights to instruct, terminate contract -Data protection, information obligations

Präsentationtitel | | Seite 27 Protection of client funds Client fundscredit institution, central bank or (with client‘s consent) money market omnibus accounts allowed Fin. instrumentsfirm with license for safe-keeping with individual consent: use (e.g. securities lending) Careful selection (qualification, reputation, experience) Third country, if necessary or professional client Proper book-keeping Information of client about rights and risks

Präsentationtitel | | Seite 28 MiFID in the context of the crisis Less impact on (big) investment firms than expected Strong competion between trading venues, new MTF Too early for concluding assessment of quality and efficiency The new European Commission will review MiFID Corporate Finance advice, obligatory telephone recording CESR works on harmonisation of supervisory practice New European Supervisory Authorities drafting technical standards Harmonised level of protection: Packaged Retail Investment Products (PRIPS) - MiFID extended to life insurance products Germany: protocol of the advisory session

Präsentationtitel | | Seite 29 Thank you Hans-Georg Carny BaFin (Federal Financial Supervisory Authority) Senior Advisor, Securities Supervision Dep. WA 11 (fundamental issues and legislation) Lurgiallee 12, Frankfurt, Germany Tel.: +49 (0) Fax: +49 (0)