Since January 2023, PRIIP KIDs have replaced UCITS KIIDs in the EU. Another significant change is forthcoming: transaction costs will be calculated using the Arrival Price Method in the future.
Background and necessity of changes:
Specific transaction costs must be stated within the PRIIP KIDs. Currently, management companies have the option of estimating these costs approximately using the MiFID or estimation method instead of calculating them at great expense. From 2024/25, the EU will require all PRIIP producers to use the Arrival Price Method to calculate transaction costs in order to ensure cross-product comparability.
What does the Arrival Price Method mean?
This means that from the end of 2024, a PRIIP KID that meets the basic regulatory requirements must use the Arrival Price Method to calculate transaction costs. The application of the Arrival Price Method as the basis for calculating the implied transaction costs initially means that instead of an estimated value, an arrival price must be determined in future, namely at the time the order is placed (order is placed on the market). This arrival price is set against the actual trade price
and is included in the calculation of transaction costs as a cost per trade. The Arrival Price Method requires not only historical tick data in local exchange time, licensed by PRIIP KID creators, but also a comprehensive, transparent set of rules that must be implemented for various asset classes and case constellations. In the absence of data, an RTS guideline-compliant estimate must be used.
Impact on market participants:
The changes have the greatest impact on three types of market participants: Reporting providers must comply with the new standard and prepare their licenses, databases and IT accordingly. Investment management companies will be affected next and are expected to start implementing the new requirement in earnest from the second half of 2024. However, there may not be enough time before the end of the year to implement their own solution. Finally, asset managers are the third affected party, as they may not be able to sell products from the beginning of 2025 if no regulatory documents are available.
Managing the transition and recommendations
It is advisable to clarify at an early stage who is responsible for your own documents and how transaction costs are currently sourced. A changeover to this method should be made in good time to ensure that all processes are adapted by the end of the year.
Addressing this issue in the first half of 2024 offers the opportunity to adapt your own processes before the market becomes hectic. Anevis has significantly expanded its expertise in this area through the acquisition of gd inside. Please contact us for a personal consultation.
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