Exploring Options for EU Retail Clients

Can European Investors Buy US ETFs? Exploring Options for EU Retail Clients

Can European investors buy US ETFs? Is it possible to buy US ETFs for EU retail clients?

No, since 2018 EU residents can’t trade US-domiciled ETFs because of EU legislation that most US-registered ETFs have not bothered to deal with. For most EU traders and investors this means US ETFs are not possible to trade for the foreseeable future.

However, there is a “loophole” if you can register as “professional”.

Background: the PRIIP is the culprit

An EU/EEA regulation called MiFID requires brokers to categorize their clients as either “retail” or “professional” in order to determine the correct level of investor protection and transparency.

MiFID has thus prohibited EU-residents from investing and trading in US ETFs, like for example SPY, XLP, EEM, etc. The legislation was put into force in 2018 and as such, it has been in existence for many years already.

To my knowledge, no US ETF provider (?) has taken on the burdensome task to comply with EU laws.

This means you can’t open a new position in ETFs, just close already existing positions. There is currently no timeframe as to when (or if) ETFs will be tradeable again. Any orders are simply rejected if the issuer of the product has decided not to provide the KID required to distribute the product to EU/EEA retail residents.

It looks likely the rules are here to stay and thus you need to trade or invest in EU-domiciled ETFs.

What are packaged retail investment and insurance-based products (PRIIPs)?

The neat name of the problem is called Packaged Retail and Insurance-based Investment Product Regulation (PRIIPS). The regulation is intended to enhance understanding of these products through the provision of disclosure documentation. This documentation is referred to as the Key Information Document (or “KID”). The KID provides information such as product description, costs, risks & performance.

Interactive Brokers have issued a note about the regulation. If a product is eligible for trading, you need to check for KID.

However, there is a way to circumvent this (legally, of course) if you can be classified as “professional”.

In this case, the distinction between “professional” and “non-professional” is not the same as for market data purposes. When you order real-time quotes you need to answer a questionnaire to determine if you classify as “professional” or not. Professional means in this case a lot higher fees for the data. But this classification is by exchange designation.

To be able to trade US-domiciled ETFs the term professional is completely different:

You can reclassify manually to “professional” by application

It’s possible to be reclassified from retail to professional once certain qualitative, quantitative, and procedural requirements are met, at least at Interactive Brokers. This is based on two requirements: a qualitative one and a quantitative one.

The qualitative one is based on whether or not you have the expertise, experience, and knowledge to ensure that you are capable of making your own investment decisions and that you understand the risks involved.

The quantitative requirements are based

  1. You must have a balance of at least 500 000 USD including both positions and cash, or
  2. You have worked in the financial sector for at least one year in a professional position, or
  3. You have carried out trades in a significant size of a frequency of at least 10 per quarter over the last year.

Two of the quantitative requirements must be met.

If you believe you fulfill those requirements, you can make an application to reclassify to professional.

Ending remarks: Can European investors buy US ETFs? (US ETFs for European investors)

(A reader named Zaki made a comment in the comments section on how to circumvent the rules. We don’t know the legal basis for his recommendation – we are no lawyers.)

Unfortunately, it is very hard for EU retail traders and investors to buy US-domiciled ETFs. Very few can be classified as “professional”. This means that EU retail traders and investors can’t trade US-domiciled ETFs.

You can buy very risky single stocks, but not a less risky group of stocks like an ETF. Pretty absurd!


– What is the reason behind the restriction on EU residents trading US ETFs?

EU legislation, specifically MiFID (Markets in Financial Instruments Directive), requires brokers to categorize clients as either “retail” or “professional.” The regulation prohibits EU residents from trading in US ETFs, and to date, US ETF providers have not complied with EU laws.

– What is MiFID, and how does it impact EU residents trading US ETFs?

MiFID, or the Markets in Financial Instruments Directive, is an EU/EEA regulation that classifies clients as “retail” or “professional” to determine investor protection and transparency levels. MiFID restricts EU residents from trading US ETFs.

– Can EU residents trade US ETFs if they are classified as “professional”?

Yes, EU residents can trade US ETFs if they are classified as “professional.” Reclassification involves meeting qualitative and quantitative requirements, such as having expertise, experience, and a balance of at least $500,000 or relevant professional experience.

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