ESMA_QA_1126
Status: ✅ Answer Published
Link to ESMA Q&A tool: https://www.esma.europa.eu/publications-data/questions-answers/1126
Regulatory Context
Regulation : MIF2
Level 1 Regulation: Markets in Financial Instruments Directive II (MiFID II) Directive 2014/65/EU- Investor Protection and Intermediaries
Level 2 Regulation: No information available
Level 3 Regulation: No information available
Topic: Product governance
Subject Matter: Product governance
Question
Submission Date: 19 November 2021
Are all bonds embedding a make-whole clause exempt from the MiFID II product governance requirements?
ESMA Answer
Answer Date: 19-11-2021
[ESMA35-43-439 Investor protection Product governance According to Article 16a of MiFID II, “an investment firm shall be exempted from the requirements set out in the second to fifth subparagraphs of Article 16(3) and in Article 24(2), where the investment service it provides relates to bonds with no other embedded derivative than a make-whole clause or where the financial instruments are marketed or distributed exclusively to eligible counterparties”. This means that the mere presence of a make-whole clause is not sufficient for a financial instrument to be exempt from the MiFID II product governance requirements. Below is a list of practical examples based on Article 16a of MiFID II.
Example
Target market (type of clients category)
Subject to MiFID II product governance requirements?
Bonds without embedded derivatives (i.e. ‘plain vanilla’ bonds)
Retail and/or professional clients
Yes
Bonds with one or more embedded derivatives without a make-whole clause
Retail and/or professional clients
Yes
Bonds with a make-whole clause and no other embedded derivative
Retail and/or professional clients
No
Bonds with one or more embedded derivatives AND a make-whole clause
Retail and/or professional clients
Yes
All bonds
Only eligible counterparties (as final clients)
No
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