Target market under MiFID II: the distributor’s perspective

Abstract

One of the innovations introduced by MiFID II is product governance, including target market assessment as a crucial part of product governance measures. The target market of a financial instrument as an intended group of end clients sharing common characteristics shall generally be determined both by the manufacturer and the distributor of the respective financial instrument. From the related duties, the paper refers to those imposed on the distributor. The paper addresses the following issues. Firstly, what is the target market, including the distributor’s target market, and what are the distinct types of target markets? Secondly, which process and criteria should the distributor apply when assessing the target market? How does the distributor’s target market interact with the manufacturer’s target market and are there any frictions? Thirdly, what are the theoretical and practical issues in case an out-of-scope manufacturer is involved? Is there any specific information the distributor shall assess and if so, where to find it? Finally, which consequences arise from the interaction between target market assessment and the suitability/appropriateness assessment under MiFID II? Namely, could the financial instrument be distributed within the so called negative target market and at the same time be appropriate and/or suitable at the level of an individual client as a representative of the negative target market?