Requirement (MIFID)
Article 31 Information about financial instruments
Requirements MIFID - DIRECTIVE 2006/73/EC
Description
Description
1. Member States shall require investment firms to provide
clients or potential clients with a general description of the
nature and risks of financial instruments, taking into account, in
particular, the client's categorisation as either a retail client or a
professional client. That description must explain the nature of
the specific type of instrument concerned, as well as the risks
particular to that specific type of instrument in sufficient detail
to enable the client to take investment decisions on an informed
basis.
2. The description of risks shall include, where relevant to the
specific type of instrument concerned and the status and level of
knowledge of the client, the following elements:
(a) the risks associated with that type of financial instrument
including an explanation of leverage and its effects and the
risk of losing the entire investment;
(b) the volatility of the price of such instruments and any
limitations on the available market for such instruments;
(c) the fact that an investor might assume, as a result of
transactions in such instruments, financial commitments
and other additional obligations, including contingent
liabilities, additional to the cost of acquiring the instruments;
(d) any margin requirements or similar obligations, applicable
to instruments of that type.
Member States may specify the precise terms, or the contents, of
the description of risks required under this paragraph.
3. If an investment firm provides a retail client or potential
retail client with information about a financial instrument that is
the subject of a current offer to the public and a prospectus has
been published in connection with that offer in accordance with
Directive 2003/71/EC, that firm shall inform the client or
potential client where that prospectus is made available to the
public.
4. Where the risks associated with a financial instrument
composed of two or more different financial instruments or
services are likely to be greater than the risks associated with any
of the components, the investment firm shall provide an
adequate description of the components of that instrument and
the way in which its interaction increases the risks.
5. In the case of financial instruments that incorporate a
guarantee by a third party, the information about the guarantee
shall include sufficient detail about the guarantor and the
guarantee to enable the retail client or potential retail client to
make a fair assessment of the guarantee.
Comment
Applies to second indent of Article 19(3) of Directive 2004/39/EC