ECJ Khorassani Case: (Re)Defining the Scope of MIFID II Regulated Distribution?
15 Pages Posted: 4 Oct 2019
Date Written: October 2, 2019
The scope of activities in financial markets which are regulated as distribution of financial instruments and services is to a significant degree determined by the contents of an investment service of reception and transmission of orders in relation to financial instruments in the meaning of MiFID II. The issue has been quite recently influenced by the European Court of Justice which stated in the judgement in Khorassani case that the relevant investment service does not include brokering with a view to concluding a contract covering portfolio management services.
The paper examines possible impacts of the judgement on distribution scenarios utilizing brokering of framework contracts between clients and investment firms leading to purchase or sale of financial instruments. It aims on answering the following question: does such distribution scenario present provision of investment service of reception and transmission of orders in the meaning (re)defined by ECJ?
The answer has crucial impact on the regulatory regime of the respective activities as well as related duties of the broker (distributor). In case the answer is positive, such brokering would be generally subject to rather demanding MiFID II rules. In case it is not, the brokering would fall out of scope of MiFID II.
The answer must be based on case-by-case analysis. The content of the respective contract and related documents, the business model of the investment services provider, its marketing strategy and the extent of its authorization should be considered. The material activity of the broker as well as content of a possible agreement between the broker and the investment services provider is also relevant.
Keywords: MiFID II, investment services, reception and transmission of orders, investment brokerage, framework brokerage contract
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