BETA

24 Amendments of Arlene McCARTHY related to 2012/0169(COD)

Arlene McCARTHY

Proposal for a regulation
Recital 21 a (new)

(21a) Although improving investment product disclosures is essential to rebuild the trust of retail investors in the financial markets, product design rules are equally important to ensure effective retail investor protection. Imperfect advice from financial advisors, biases in decision making and evidence that financial behaviour depends primarily on psychological attributes create issues that need to be addressed through curbing complexity in the packaging of investment products.

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Recital 21 b (new)

(21b) In order to safeguard investors' interests, it is necessary to lay down rules defining the assets that investment products sold to retail investors can invest in. This will ensure that unusual and/or unregulated asset classes are not offered to retail investors. It is also necessary to limit the maximum risk exposure of the products relative to their notional value. With regard to derivative instruments, requirements should be set in terms of the eligibility of the instruments, limiting the use of derivative instruments to plain vanilla derivative instruments, average rate options and first generation barrier options. Such a limitation to simple derivative instruments would not restrict investors' choice but prevent unsuitable and excessively complex risk exposures and packaging features from being offered to non-professional investors.

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f a (new)

(fa) 'eligible asset' means authorized asset as defined in Article 13a;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f b (new)

(fb) 'plain vanilla swap' means a derivative instrument involving one party, the fixed rate payer, making fixed payments, and the other party, the floating rate payer, making payments which depend on the level of future interest rates. Interest rate payments are made on a notional amount and there is no exchange of principal and no additional features;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f c (new)

(fc) 'plain vanilla forward contract' means a contract involving the sale by one party and the purchase by another party of a predetermined amount of an underlying asset, at a predefined price and at predefined date in the future with no additional features;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f d (new)

(fd) 'plain vanilla option' means the most basic option type with a simple expiration date and strike price with no additional features;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f e (new)

(fe) 'simple barrier option' means an option which can be exercised only (i) if the price of the underlying asset has not reached or crossed a predetermined level; or (ii) if the price of the underlying asset has reached or crossed a predetermined level;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f f (new)

(ff) 'binary option' means a financial contract with a predetermined payoff conditional upon certain specific conditions occurring and zero otherwise;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f g (new)

(fg) 'average rate option' means an option where the strike price is calculated as the average price of the underlying asset over a predetermined period;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f h (new)

(fh) 'forward start option' means a plain vanilla option whose strike price will be fixed later than the trade date;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f i (new)

(fi) 'option with deferred settlement' means a plain vanilla option whose settlement date is later than 2 business days after its expiry date;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 4 – paragraph 1 – point f j (new)

(fj) 'path-dependent payoff' means an investment product return that is linked not only to the value at maturity of the underlying assets but also to their value at several points in time during the life of the investment product;

2013/02/20
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 8 – paragraph 2 – point f

(f) under a section titled ‘"What are the costs?’", the costs associated with an investment in the investment product, comprising ~~both~~all direct and indirect costs to be borne by the investor, including ~~summary indicators of these costs~~transaction costs expressed as a percentage of the net asset value. Summary indicators of all the above costs shall also be included;

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Chapter II a, Article 13 a (new)

CHAPTER II a OBLIGATIONS CONCERNING THE INVESTMENT POLICIES OF RETAIL INVESTMENT PRODUCTS Article 13 a Eligible assets 1. The investments of investment products as defined in Article 4 of this Regulation shall only comprise one or more of the following: (a) transferable securities as defined in point n of Article 2(1) of Directive 2009/65/EC except financial instruments backed by or linked to the performance of other assets which may differ from those referred to in Article 19(1) of Directive 85/611/EEC; (b) money market instruments as defined in point o of Article 2(1) of Directive 2009/65/EC; (c) recently issued transferable securities as defined in point d of Article 50(1) of Directive 2009/65/EC; (d) units of UCITS or other collective investment undertakings that are authorized as eligible assets under point e of Article 50(1) of Directive 2009/65/EC; (e) deposits with credit institutions as described in point f of Article 50(1) of Directive 2009/65/EC; (f) financial derivative instruments, including equivalent cash-settled instruments dealt in on a regulated market as defined in points a, b and c of Article 50(1) of Directive 2009/65/EC, or financial derivative instruments dealt in over-the-counter (OTC) derivatives, provided that: (i) the underlying of the derivative consists of instruments covered by this paragraph, financial indices whose underlying components must be eligible assets, interest rates, foreign exchange rates or currencies; and (ii) the type of derivative instrument is eligible as defined in Article 13c; and (iii) the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the categories approved by the competent authorities of the home Member State of the product manufacturer; and (iv) the OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or closed by an offsetting transaction at any time at their fair value. 2. Investment products sold to retail investors shall not, however: (a) be invested directly or indirectly in agricultural commodity derivatives; (b) be exposed to uncovered sales of transferable securities, money market instruments or other eligible financial instruments referred to in point d of paragraph 1; 3. Financial indices that are authorized to be replicated by the investment policy of funds or unit-linked insurance or to be used as the underlying of derivative instruments and referenced or linked to investment products must fulfil the following requirements on the following basis approved by the competent authority in the home Member State of the investment product manufacturer: (a) the index composition is sufficiently diversified; (b) the index represents an adequate benchmark for the market to which it refers; and (c) it is published in an appropriate manner.

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Chapter II a, Article 13 b (new)

Article 13 b Risk management 1. The investment product manufacturer shall employ a risk-management process which enables it to monitor and measure at any time the risk profile of the investment product. It shall employ a process for accurate and independent assessment of the value of OTC derivatives. It shall communicate to the competent authorities of its home Member State regularly in regard to the types of derivative instruments, the underlying risks, the quantitative limits and the methods which are chosen in order to estimate the risks associated with transactions in derivative instruments regarding each product. 2. The investment product manufacturer shall ensure that the investment product's global exposure relating to derivative instruments does not exceed the investment product's total value. The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, future market movements and the time available to liquidate the positions. When transferable securities or money market instruments embed a derivative, the derivative shall be taken into account when complying with the requirements of this Article. 3. The absolute value-at-risk of an investment product at the time and date of sale cannot be greater than 20% of its notional. The calculation of the value-at-risk should be carried out in accordance with the following parameters: (a) a one-tailed confidence interval of 99 %; (b) a holding period equivalent to 1 month (20 business days); and (c) an effective observation period (history) of risk factors of at least 3 years (750 business days) unless a shorter observation period is justified by a significant increase in price volatility (e.g. due to extreme market conditions). 4. The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) shall develop regulatory standards to determine: (a) guidelines on risk measurement and the calculation of global exposure of the investment products sold to retail investors; (b) guidelines on financial indices; The European Supervisory Authorities shall submit those draft regulatory technical standards to the Commission by [...]. Power is conferred on the Commission to adopt the regulatory technical standards in accordance with the procedure set out in Articles 10 to 14 of Regulation (EU) No 1093/2010, Articles 10 to 14 of Regulation 1094/2010 and Articles 10 to 14 of Regulation (EU) No 1095/2010.

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Chapter II a, Article 13 c (new)

Article 13 c Use of derivatives 1. The following types of derivative instruments, including equivalent cash- settled instruments, dealt in on a a regulated market as defined in points a, b and c of Article 50(1) of Directive 2009/65/EC, or financial derivative instruments dealt in over-the-counter (OTC) derivatives, are eligible to be used within investment products sold to retail investors: (a) Plain vanilla swaps, plain vanilla forward contracts and futures contracts; (b) Plain vanilla options; (c) Simple barrier options and binary options, provided that: (i) the notional amount of each binary option, including binary options embedded into other derivative instruments or replicated with plain vanilla instruments, whose digital payoff would impact negatively the investment product's return, is lower than 10% of the investment product notional amount; and (ii) the sum of the notional of all binary options, including binary options embedded into other derivative instruments or replicated with plain vanilla instruments, whose digital payoffs would impact negatively the investment product's return, is lower than 20% of the investment product notional amount; and (iii) the underlying of the barrier trigger is identical to the underlying of the option. (d) Average rate options; (e) Forward start options and options with a deferred settlement.

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Chapter II a, Article 13 d (new)

Article 13 d Payoff rules 1. The payoff of an investment product shall not: a) include a number of mechanisms, events or asset classes creating a risk of misinterpretation; (b) be conditional upon the occurrence of events uncommon for non-professional investors, such as the level of regulatory capital of a financial institution; (c) include packaging features playing on the behavioural biases of investors 2. The European Banking Authority (EBA), the European insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) shall develop guidelines providing further guidance on the conditions referred to in paragraph 1 of this article.

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 15 – paragraph 1 – introductory part

1. Where a retail investor initiates a procedure for alternative dispute resolution laid down in national law against an investment product manufacturer or a person selling investment products with regard to a dispute concerning rights and obligations established under this Regulation, the investment product manufacturer or the person selling investment products shall participate in that procedure~~, provided that it fulfils the following requirements:~~.

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 15 – paragraph 1 – point a

~~(a) the procedure results in decisions which are not binding;~~deleted

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 15 – paragraph 1 – point b

~~(b) the limitation period for bringing the dispute before a court is suspended for the duration of the procedure for alternative dispute resolution;~~deleted

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 15 – paragraph 1 – point c

~~(c) the period of prescription of the claim is suspended for the duration of the procedure;~~deleted

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 15 – paragraph 1 – point d

~~(d) the procedure is free of charge or at moderate cost, as specified in national legislation;~~deleted

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 15 – paragraph 1 – point e

~~(e) electronic means are not the only means by which the parties can gain access to the procedure;~~deleted

2013/02/15
Committee: ECON

Arlene McCARTHY

Proposal for a regulation
Article 15 – paragraph 1 – point f

~~(f) interim measures are possible in exceptional cases where the urgency of the situation so requires.~~deleted

2013/02/15
Committee: ECON