Interactive Brokers Ireland Limited - MiFID Categorisation

Client Categorisation FAQs

Overview

Why does IBIE categorise its clients?

The European Directive on Markets in Financial Instruments (MiFID II) requires investment firms to categorise their clients.  The purpose of client categorisation is to establish appropriate levels of protection for clients. This takes into account their knowledge of financial instruments and services and their ability to bear the associated risks.

What are the categories of clients?

There are three categories of clients:

  • Retail Clients.
  • Professional Clients, which include:
    • Clients considered professionals by their nature (per-se Professional Clients).
    • Clients who can be treated as professionals at their own request (opt-up Professional Clients).
  • Eligible Counterparties.

However, IBIE does not categorise clients as Eligible Counterparties. 

Client Categories

What clients are categorised as Retail Clients?

All individuals and legal entities that do not meet the criteria of a Professional Client or Eligible Counterparty are categorised as Retail Clients. Professional Clients or Eligible Counterparties may also be treated as Retail Clients on request. Retail Clients receive the highest level of protection under MiFID II.

What clients are categorised as per-se Professional Clients?

This is a client that is presumed to have the experience, knowledge and skill to make their own investment decisions and properly assess the risks involved. These are:

  • Entities that need to be approved or regulated to operate in the financial markets:
    • Credit institutions;
    • Investment firms;
    • Other approved or regulated financial institutions;
    • Insurance companies;
    • Collective investment schemes and their management companies;
    • Pension funds and their management companies;
    • Traders in commodities and commodity derivatives;
    • Local companies;
    • Other institutional investors. 
  • Large companies meeting two of the following criteria, at the individual level (Professional Client “by size”):
    • Balance sheet total: EUR 20 000 000;
    • Net revenues: EUR 40 000 000;
    • Shareholders’ equity: EUR 2 000 000;
  • National and regional governments, including public bodies that manage public debt at the national or regional level, central banks, international and supranational institutions such as the World Bank, IMF, ECB, EIB, and other similar international organisations
  • Other institutional investors whose primary business is investing in financial instruments, including entities engaged in asset securitisation or other financing transactions.

What clients are categorised as opt-up Professional Clients?

An opt-up Professional Client is a Retail Client that has requested IBIE to be treated as a Professional Client and IBIE has agreed to that request. IBIE may refuse the client's request to be treated as a Professional Client. 

Changing Your Client Categorisation

How can I request a change to my client categorisation?

You can request to change your client categorisation from Account Management under Settings> Account Settings> MiFID Client Category.

Before agreeing to the request, IBIE will need to ensure that you are able to make your own investment decisions and understand the risks involved in losing the protections given to Retail Clients. You will also need to confirm in writing that you agree to waive the regulatory protections granted to Retail Clients but not to Professional Clients. You need to confirm that you are aware of the consequences of losing such protections.

What are the main disadvantages in being categorised as an opt-up Professional Client?

If we treat you as an opt-up Professional Client, you will not be protected in the same way as you are being protected as a Retail Client. We will assume that you have the knowledge and experience to make your own investment decisions and assess all related risks.

What are the main advantages in being categorised as an opt-up Professional Client?

Professional Clients have access to a broader range of investments, as they are able to trade certain products that are not available to Retail Clients. For example, certain packaged investment products are only available to Professional Clients. This also assists Professional Clients in diversifying their risks. 

Advantages and Disadvantages of Professional Client Status

What does IBIE consider to be a trade of a transaction of significant size when assessing how to respond to a Retail Client categorisation request?

To determine whether transactions are a significant size under a) above, IBIE considers whether:

  • During the last four quarters, the client conducted at least forty (40) trades;
  • During each of the last four (4) quarters, there was at least one (1) trade;
  • The total notional value of the top forty (40) trades of the last four (4) quarters is greater than EUR 200,000; and
  • The account has a net asset value greater than EUR 50,000.

Trades in Spot FX and Unallocated OTC Metals are not considered for the purpose of this calculation.

What does IBIE consider when deciding whether to allow a Retail Client to become a Professional Client?

Before reclassifying a Retail Client as a Professional Client, IBIE must:

  • Carry out an assessment of their expertise, experience and knowledge to ensure that the client is capable of making his/her own investment decisions and understands the risks involved;
  • Take all reasonable steps to ensure that the client satisfies at least two of the following criteria:
    1. the client had carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter, over the previous four quarters;
    2. the size of the client’s financial instrument portfolio exceeded EUR 500,000;
    3. the client worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

Client Protections

What are the main differences in the protections for Retail Clients as compared to Professional Clients?

The main differences in these protections as they apply to IBIE clients, include the following:

  • Client Communication: While we will also communicate with you in a way that is fair, clear and not misleading, this may change according to your categorisation. For example, there may be differences in the simplicity and frequency of our communications.
  • Client Information: We are not required to provide the same information to Professional Clients as Retail Clients. For example, we do not need to provide Key Information Documents (KIDs) for Packaged Retail and Insurance-based Investment Products (PRIIPs) to Professional Clients. However, KIDS are generally available on our website.
  • Appropriateness: IBIE is not required to assess the appropriateness of transactions for Professional Clients. IBIE carries out an appropriateness test on Retail Clients investing in certain types of products. Such test determines whether they have the necessary experience and knowledge required to invest in those types of products. IBIE does not need to give appropriateness warnings to Professional Clients.
  • Costs and Charges Information: IBIE must provide clients with information on costs and associated charges for its services and/or products. However, IBIE is not required to provide the same level of detail to Professional Clients as we must provide to Retail Clients.
  • Order Execution: IBIE is not required to inform Professional Clients on becoming aware of a material difficulty relevant to the proper carrying out of orders promptly. This is required for Retail Clients. The time-frame for providing confirmation that an order has been carried out is also more rigorous for Retail Clients’ orders than Professional Clients’ orders.
  • Best Execution: When executing Retail Client orders, the key factor in ensuring best execution is the total consideration. This includes the price of the financial instrument and the costs relating to execution. For Professional Clients we are permitted to consider other factors as well. Although in practice, IBIE applies the same approach to both types of clients.
  • CFDs: IBIE is required to apply certain protections to Retail Clients when trading CFDs. This does not apply to Professional Clients. The protections include:
  • leverage limits when opening a position;
  • the close out of your positions when margin reaches 50% of the minimum required margin;
  • negative balance protection on a per account basis;
  • a restriction on incentives offers to trade CFDs; and
  • a standardised risk warning.
  • Depreciation on Value Reporting: IBIE must inform a Retail Client with positions in leveraged financial instruments or contingent liability transactions, where the value of each instrument depreciates by 10%. This requirement does not apply to Professional Clients.
  • Compensation: IBIE is a member of the Investor Compensation Scheme. You may be entitled to claim compensation from that scheme if IBIE cannot meet its obligations to you. This will depend on the type of business and the circumstances of the claim; compensation is only available for certain types of claimants and claims in respect of certain types of business. Eligibility for compensation from such scheme is determined under the rules applicable to the scheme.

 

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