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Repurcussions of PRIIPs on US listed ETFs/CEFs

Index tracking funds and ETFs
Alaric
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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#107392

Postby Alaric » January 2nd, 2018, 2:58 pm

hiriskpaul wrote:DEGIRO have interpreted the new regulations in a strange way, linked to the language used in the ETF's documentation. If English language documentation is available, they will allow UK customers to trade the ETF, wherever it happens to be listed.


Are they saying that if essentially the same ETF is listed in both Dublin and New York, that you can buy the New York version on the basis of the Dublin Key Features? That's very pragmatic if true.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#107414

Postby hiriskpaul » January 2nd, 2018, 3:48 pm

Alaric wrote:
hiriskpaul wrote:DEGIRO have interpreted the new regulations in a strange way, linked to the language used in the ETF's documentation. If English language documentation is available, they will allow UK customers to trade the ETF, wherever it happens to be listed.


Are they saying that if essentially the same ETF is listed in both Dublin and New York, that you can buy the New York version on the basis of the Dublin Key Features? That's very pragmatic if true.

No, that would be a different product. Curiously I cannot locate any US listed ETFs on DEGIRO now, even if I use the ISIN. However, I have a few in my Favourites list and they are still tradeable! Undoubtedly a loophole.

True to their word, HL will not allow me to buy more US listed ETFs and output this message on the trade screen:

By law certain stocks must have a Key Investor Information Document / Key Information Document available before investors can purchase them. The party responsible for publishing the documents have not made them available to Hargreaves Lansdown for this stock and so it cannot be purchased. We apologise for any inconvenience caused.


Trading seems to be business as usual at IG.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#107486

Postby snagga » January 2nd, 2018, 7:12 pm

The situation seems very unclear.

I hold a slug of US-domiciled ETFs in a SIPP at Interactive Investor. The II website says that customers are blocked from adding to investments in ETFs unless a KIID has been made available. However, today I was able to purchase additional shares in VNQ, a US ETF that holds US REITs, without any problem and without being shown a KIID.

Regarding IG, the list of available shares for stockbroking clients includes US-listed ETFs but with the following flag: "† Available only to clients with relevant experience/knowledge. See FAQs for details." I can't find a relevant FAQ but this seems consistent with what others have said about an exemption applying for high net worth/sophisticated investors. Interestingly, US REITs are listed as available but without any such caveat.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#107525

Postby hiriskpaul » January 2nd, 2018, 9:47 pm

snagga wrote:The situation seems very unclear.

I hold a slug of US-domiciled ETFs in a SIPP at Interactive Investor. The II website says that customers are blocked from adding to investments in ETFs unless a KIID has been made available. However, today I was able to purchase additional shares in VNQ, a US ETF that holds US REITs, without any problem and without being shown a KIID.


Perhaps their systems have not been adequately changed? Similar to what I think is happening at DEGIRO, where there does not seem to be a problem buying a US listed ETF once you have visibility. It would appear that DEGIRO are attempting to prevent trading by removing visibility.

Regarding IG, the list of available shares for stockbroking clients includes US-listed ETFs but with the following flag: "† Available only to clients with relevant experience/knowledge. See FAQs for details." I can't find a relevant FAQ but this seems consistent with what others have said about an exemption applying for high net worth/sophisticated investors. Interestingly, US REITs are listed as available but without any such caveat.

That might explain why I have not had a problem with IG.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#108034

Postby 1nv35t » January 5th, 2018, 1:34 am

Now that EU brokerages will no longer carry US domiciled ETFs, and with US brokerages now starting to restrict or refuse service to individuals resident outside the US, these folks' options just got a whole lot narrower and more unpleasant.

Seems like there's a increase in US funds prospectus' adding in wording along the lines of ...
PROHIBITION OF SALES TO EEA RETAIL INVESTORS—
The Securities are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”).

PRIIP on the pretext of being "good for investors", looks to be yielding less available options (US tending to be more efficient/liquid/lower cost), higher costs, and locked into limited markets. Best hope (wishful thinking) is that Brexit might provide a bridge. I can foresee however where not even spreadbets might carry current levels of depth/breadth of choices.

Haven't seen much in the way of suggestions/advice for workarounds either, such as setting up a trading firm in a non-excluded region/country to trade through.

A real PITA for me as a large proportion of my exposure is via the US markets and I don't relish the prospect of being confined to EEA (have no doubt that they'll maximise costs/taxes once they've locked the doors).

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#108035

Postby 1nv35t » January 5th, 2018, 1:44 am

hiriskpaul wrote:Trading seems to be business as usual at IG.

How long that might last ??? Additional regulations to follow look to clarify 'sophisticated/high worth investors' at levels beyond the reach of all but the most wealth (such as £10M+ liquidity and ... (other additional criteria)). And as US fund providers transition over to policies of not marketing to EEA so might IG's potential to hedge positions dry up such that they pull products/offerings in a similar 'unavailable - sorry for any inconvenience' type manner.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#108080

Postby ModernMicawber » January 5th, 2018, 11:27 am

I'll have a bit of cash towards the end of the month, will attempt a test purchase through YouInvest then. For once, their sluggishness may turn out to be a benefit!

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109259

Postby greygymsock » January 10th, 2018, 4:45 pm

i have successfully bought more of 1 of the US ETFs i hold in my youinvest SIPP, and other US ETFs also appear to be buyable.

i did phone them in december to ask if this would be possible from january, and the person i spoke to didn't think there would be any problem.

when buying, there is a message that their data provider does not have a KID available, and the suggestion to look for it on the fund manager's website.

this does look deliberate on youinvest's part, rather than a glitch. but of course i can't say whether they'll stick to this approach.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109335

Postby 1nv35t » January 10th, 2018, 11:14 pm

when buying, there is a message that their data provider does not have a KID available, and the suggestion to look for it on the fund manager's website.

PRIIP Regulation lays down potentially heavy sanctions for non-compliance. These can include fines up to €5 million, or twice the amount of profits gained by avoidance - as well as public censure or prohibition orders banning further marketing of the product. US funds are under pressure to prohibit marketing their products to EU residents in part as a consequence of such EU regulations.

Prior tick a box to confirm you are a sophisticated investor and understand the risk ...etc. will transition over to more specific requirements for exemptions, which are a bit catch-22 i.e. needing to meet two of the following :

That the investor has carried out an average of ten transactions per quarter over the previous four quarters in the relevant instrument. i.e. the fund; That the investor’s, relevant, financial instrument portfolio exceeds €500,000; That the investor works or has worked in the financial sector in a professional position which requires knowledge of the transactions envisaged.

So even if you're a €500,000 investor, you can't fulfill the first option and have traded 10+ times each quarter if the product isn't already available to you, leaving a requirement of €500,000+ and being (or having been) a professional financial sector worker (that provided knowledge of the transactions).

Best hope is if point of sale i.e. your brokers opt to provide their own KID when not already available. The rules are basic : A maximum of three pages of A4; In a standardised format and content prescribed in the PRIIP Regulation (see below); Provided in clearly expressed, easy to understand language; No colours or corporate branding that may distract the reader; If distributed in another EU state, translated into the official language of that state.

With content : The title “Key Information Document” displayed prominently at the top of the page; The purpose of the document – key information about this investment product; The name of the product. i.e. the fund; A warning that the product may be difficult to understand; A description of the product – type, objectives, target investor; A description of the risks and potential rewards: risk indicator, on a scale of 1-7 and performance scenarios; What happens if the manufacturer is unable to pay-out; Details of all costs to be borne by the investor, including transaction costs and ongoing costs expressed in terms of impact on yield; Recommended minimum holding period; How to complain; Other relevant information.

Conceptually could be badge regulation similar to warnings about browser cookies. But is bad in the sense that its the start of a slippery road towards locking EU investors into EU investment products and likely paying more than might otherwise have been the case.

Maybe good intent (or ulterior motive), just another layer of EU bureaucracy. Perhaps we should be more like other EU member states and just ignore things. UK brokers/providers could for instance include a I've read the KID tickbox and a dead link to the KID and record that the retail client had acknowledged that they'd read the KID before having traded. The likes of youinvest might be better served/protected that way than their current choice.

Alaric
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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109341

Postby Alaric » January 10th, 2018, 11:59 pm

1nv35t wrote:PRIIP Regulation lays down potentially heavy sanctions for non-compliance. These can include fines up to €5 million, or twice the amount of profits gained by avoidance - as well as public censure or prohibition orders banning further marketing of the product.


Presumably it would be the FCA doing the enforcing.

Given that the FCA and its predecessors do not have a stellar past record of effective investor protection, would they feel politically comfortable trying to enforce EU diktats given the vote to leave the EU? It's an obvious example of EU illogic or rules for the sake of it that you are allowed to buy individual stocks on US markets, but not reduce your risk by buying a diversified package of the same stocks.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109346

Postby 1nv35t » January 11th, 2018, 1:38 am

Alaric wrote:It's an obvious example of EU illogic or rules for the sake of it that you are allowed to buy individual stocks on US markets, but not reduce your risk by buying a diversified package of the same stocks.

The logic is repatriation, the roll back out of globalisation. Take for instance a simple case of a large fund with presence in two countries, come dividend dates they might 'internally' lend shares from one division into the other lower dividend tax region, for a loan cost comparable to the dividend value, and then return the stock once ex-div. By encasing such firms there's the conceptual benefit of capturing more tax-take, but in the real world such predicted tax revenue enhancements more often prove to be wrong and shortfalls have to be made up by additional costs/taxes or even confiscations on savers along with increased bureaucrazy and tax law complexities (I closed my own relatively small business due to such complexities - just one case of where perhaps 100 individuals might have been supported by the business).

A reason IMO why no-deal Brexit is the best choice for the UK. Even if we strike a deal and have access that is more inclined to favour the EU, not the UK. We'd be better served with lower nominal GDP, smaller population, barriers to imports, higher GDP/capita. More so given the future is a robotics revolution. We have the capabilities and potential to be self sufficient on the energy and food fronts and efforts would be better spent facilitating that than clinging onto the EU and the negatives that induces.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109683

Postby BasketCase » January 11th, 2018, 9:31 pm

I wish I had seen this before January. Thanks to all posters as very informative now. Had only 1 US domiciled ETF in my HSDL Sipp. Could no longer buy any more in New Year. Was impressed that they let me sell the ETF commission-free as thought it best to extract myself from it whilst markets easier to sell and find an alternative that I can trade without restriction. They acceded to request as here had, in effect, been no prior notification by iShares of the issue to me/Halifax Share Dealing. The ETF was Emerging Markets Small Cap - does anyone know an Irish/UK domiciled ETF that offers similar exposure and is distributing (not accumulating). Thanks

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109791

Postby GeoffF100 » January 12th, 2018, 10:40 am

Alaric wrote:
It's an obvious example of EU illogic or rules for the sake of it that you are allowed to buy individual stocks on US markets, but not reduce your risk by buying a diversified package of the same stocks.

The logic is repatriation, the roll back out of globalisation.

The purpose of the EU and the EEA is to facilitate trade between members and put up trade barriers to outsiders. The world is also becoming more protectionist again. Nonetheless, I doubt that these EU rules (which are said to be rather vague, which I expect they had to be to get every member state to agree) are a protectionist measure. I expect that the intention is to ensure that investors are properly informed before they buy. Some UK brokers appear to be putting an interpretation on the rules that was never intended. It is also possible that the UK regulator is over-stepping the mark.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109798

Postby Alaric » January 12th, 2018, 10:57 am

GeoffF100 wrote: Nonetheless, I doubt that these EU rules (which are said to be rather vague, which I expect they had to be to get every member state to agree) are a protectionist measure. I expect that the intention is to ensure that investors are properly informed before they buy.


Nevertheless they have had the effect of being protectionist. The effect of globalisation is that essentially the same assets can be purchased in New York or in Dublin. Restrictive measures by the US can mean that US citizens resident in the UK have to elect the New York version. The insistence on information being provided in a particular format can require UK residents to buy the Dublin version.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109852

Postby hiriskpaul » January 12th, 2018, 12:49 pm

I don't think protectionism is the prime motivation either, nevertheless whenever some kind of standard is enforced that will have a protectionist slant to it as it means yet another level of bureaucracy on top of what already exists. Unfortunately UK regulators have a habit of copper bottoming EU directives as well which sometimes does not help.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109869

Postby ModernMicawber » January 12th, 2018, 1:22 pm

hiriskpaul wrote: Unfortunately UK regulators have a habit of copper bottoming EU directives as well which sometimes does not help.


Not strictly investment-related, but did you see this story: http://www.theregister.co.uk/2018/01/08 ... bans_byod/ ?

Those of you with some "front office" experience will recall that generally speaking there are already a few rules about this kind of thing, which vary from institution to institution, but the new regulation means the same thing will apply across the whole FS industry.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109945

Postby hiriskpaul » January 12th, 2018, 4:17 pm

ModernMicawber wrote:
hiriskpaul wrote: Unfortunately UK regulators have a habit of copper bottoming EU directives as well which sometimes does not help.


Not strictly investment-related, but did you see this story: http://www.theregister.co.uk/2018/01/08 ... bans_byod/ ?

Those of you with some "front office" experience will recall that generally speaking there are already a few rules about this kind of thing, which vary from institution to institution, but the new regulation means the same thing will apply across the whole FS industry.

Ludicrous. I used to do a lot of work remotely and I know a lot of people still do, even for investment firms. How can this rule work in these cases?

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#109948

Postby GeoffF100 » January 12th, 2018, 4:29 pm

Unfortunately UK regulators have a habit of copper bottoming EU directives as well which sometimes does not help.

The UK was undoubtedly consulted on these rules, and could have said no, as could any other EU member. Nonetheless, I expect that we were preeminent in lobbying for the rules to be as strict as possible. When a watered down version of the rules was finally agreed, the FCA may well have decided to beef them up. Alternatively, it may be a case of the FCA not issuing clear guidance, and most brokers deciding to play safe. If enough people make a fuss, e.g. writing to their MPs, the FCA may decide to clarify the requirements.

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#110020

Postby XFool » January 12th, 2018, 10:18 pm

GeoffF100 wrote:
Unfortunately UK regulators have a habit of copper bottoming EU directives as well which sometimes does not help.

The UK was undoubtedly consulted on these rules, and could have said no, as could any other EU member. Nonetheless, I expect that we were preeminent in lobbying for the rules to be as strict as possible. When a watered down version of the rules was finally agreed, the FCA may well have decided to beef them up. Alternatively, it may be a case of the FCA not issuing clear guidance, and most brokers deciding to play safe. If enough people make a fuss, e.g. writing to their MPs, the FCA may decide to clarify the requirements.

OK, but AFAICS all my LSE listed ITs, including the off-shore based ones, already have standard format KIDs in place. So should not be a problem. Admittedly I have not yet tried to purchase, but looks OK to me.

Surely this *should* only effect US based securities, and only then because presumably US based companies and funds haven't being paying attention/aren't sufficiently bothered about their European market?

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Re: Repurcussions of PRIIPs on US listed ETFs/CEFs

#110031

Postby 1nv35t » January 12th, 2018, 11:37 pm

XFool wrote:US based companies and funds haven't being paying attention/aren't sufficiently bothered about their European market?

Many seem content to just add the likes of "not to be marketed to any EEA residents". Aware, not bothered.

Japan, Shanghai, Hong Kong, London are the major capitalist centres. Without the UK the EU will have lost 16% of its population, 3 of the 31 countries, 25% of net contributors, 50% of its non-EU export figures and 50% of its global influence. Socialist tendencies and a relatively insignificant market not worthy of the effort (better marketing prospects in Asia/East). http://www.visualcapitalist.com/all-of- ... s-by-size/


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