Last Updated on March 6, 2021 by Hakan Samuelsson
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 in force in 2018 and as such it has been in existence for over two years already. To my knowledge, no US ETF provider (?) has taken the burdensome task to comply with the 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 or issuer of the product has decided not to provide the KID required to distribute the product to EU/EEA retail residents.
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” or “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.
You can reclassify manually 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
- You must have a balance of at least 500 000 USD including both positions and cash, or
- You have worked in the financial sector for at least one year in a professional position, or
- You have carried out trades in 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.
This means you can buy very risky single stocks, but not a less risky group of stocks like an ETF.