Reporting

Transaction Cost Calculation

Complete service for funds and mandates under PRIIPs and MiFID.

In January 2018, two new European regulatory initiatives – PRIIPs(1) and MiFID II(2) – came into force. Both require fund companies to calculate and deliver transaction costs to investors and distribution partners. IDS offers a comprehensive managed service for transaction cost calculation that addresses the regulatory reporting requirements and helps you overcome the related challenges.

Regulation

On 10 July 2017 the European Securities and Markets Authority (ESMA) clarified in their “Q&A on MiFID II/MIFIR Investor Protection” that asset managers are required to report transaction costs of funds for MiFID II according to the PRIIPs methodology as outlined in the Regulatory Technical Standards (RTS)(3) of 8 March 2017. Appendix VI describes different approaches, the “arrival price” or “slippage cost” method and the “estimation” or “spread/2” method with different procedures to estimate turnover depending on the age of the funds.

 

The transaction costs of a product have to be calculated at least on an annual basis for a reference period of three business years (PRIIPs, MiFID ex-ante) or one business year (MiFID ex-post) and provided as a percentage of the average net asset value of the product. Values are disclosed for different purposes, e.g., in the PRIIPs KIDs and in standard data exchange templates like the EPT(4) delivered to institutional investors, or the EMT(4) delivered to distribution partners.

Challenges

Key challenges for fund companies arising from the calculation of transaction costs are:

  • Underlying transaction data and portfolio static data have to be collected for up to four previous years and enriched with a wide variety of market data ranging from instrument static data, to arrival prices, index or basket constituents, market spreads and exchange rates.

  • Data quality has to be ensured and maintained for a huge amount of data items related to thousands of portfolios and millions of transactions for global asset managers in order to ensure a fair comparison between competing funds.

  • Transaction costs have to be calculated on a product level, usually a share class. However, investments are often traded on compartment level or in separate overlays. The interrelationship between transactions, compartments and share classes can be complex and needs to be managed adequately.

  • PRIIPs and MiFID II refer to the same principles for the calculation of transaction costs – however, specific calculation methods differ in almost all cases. As PRIIPs and MiFID II have significant overlaps with respect to the funds in scope, fund companies have to apply all three methods in parallel for most of their products.

  • The provision of compliant and sound cost figures requires an environment that allows for a continuous monitoring of the underlying data and that provides the flexibility to improve the methods over time.

The managed service for transaction cost calculation from IDS GmbH – Analysis and Reporting Services (IDS) covers the entire value chain – from data management and enrichment, to the calculation of transaction costs on portfolio level for all regulations and all types of funds up to an ongoing monitoring of the quality of the underlying data. You will benefit from:

  • Broad coverage of all types of financial instruments

  • Provision of arrival prices and transaction costs on trade level according to the arrival price method

  • Provision of spread/2 values and transaction costs on trade level for all regulatory asset categories according to the estimation method

  • Conversion of all values into share class currency

  • Calculation of the transaction costs on portfolio level compliant with the respective regulatory requirements (PRIIPs, MiFID ex-post, MiFID ex-ante for long-standing, young and new funds)

  • Treatment of hedge derivatives on share class level

  • Market data included (no additional agreements and fees required)

  • Standard or client-specific fall back rules in case of missing or implausible values

  • Processing of client-specific instrument types and customized mapping to the regulatory asset categories

  • Flexibility to split the regulatory asset categories into more granular sub-categories and to use baskets and spreads to better represent the investment policy of the fund

  • Customizable quality checks

  • Monthly updates of the transaction costs to obtain an ongoing monitoring

Benefits of the IDS managed service

Your benefits from a cooperation with IDS:

  • High-quality results and consulting during implementation and service operation.

  • Short implementation cycle – clients only have to provide the fund static data and transactions through a lean interface.

  • Cost savings thanks to a minimization of implementation complexity and coverage of all necessary market data.

  • Enhanced efficiency through use of a single integrated platform for dissemination of transaction cost data to clients, investors, distribution partners or other fund data hubs.

  • Monitoring of changes/updates of the regulation, its interpretation and implementation.

  • High process reliability through use of praxis-proven investment analysis and reporting service.

  • Available as a stand-alone service or as a module of the IDS full managed PRIIPs and MiFID II services.


(1) Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs)

 

(2) Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (MiFID II) and Directive 2011/61/EU and Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (MiFIR)

 

(3) Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents

 

(4) EPT = European PRIIPs Template; EMT = European MiFID II Template

 

IDS wins the 2017 Silver German Stevie® Award for PRIIPs Services.