Common Standard for the Determination of the Target Markets for Securities - updated May 2021

As part of the MiFID II product governance requirements, manufacturers of financial instruments have to define a target market of end clients for the products they launch. Distributors have to take account of this target market when they distribute the relevant product.
The latter is only possible in the mass retail market, if the target market for all products is determined according to uniform criteria.

For this reason, the German Banking Industry Committee (GBIC), together with the German Investment Funds Association (BVI) and the German Derivatives Association (DDV) have developed a common standard for the determination of the target markets for securities. The common standard is almost universally used in the German market.

The standard that had been developed in 2017 was updated in 2021. The updated version contains editorial changes as well as the following modifications:

• The criterion "Client category" (slide 6) has been supplemented by a reference  to Chapter 16 Question 1 of ESMA`s "Questions and Answers On MiFID II and MiFIR investor protection and intermediaries topics" (ESMA35-43-349). According to ESMA CoCo-Bond-Funds are generally not compatible with the retail market. Therefore, manufacturers should not choose "Retail client" when defining the target market for CoCo-Bond-Funds.
• With regard to the criterion "Knowledge and / or Experience" (slide 7) one has to distinguish when defining the target market for Tracker Certificates. Tracker Certificates based on standard indices (see the new definition in a footnote) should be classified as "Client with basic knowledge of and / or experience with financial products (1)“. Other Tracker certificates should be classified as "Client with advanced knowledge of and / or experience with financial products (2)“.
• Furthermore, with regard to the criterion "Knowledge and / or Experience" (slide 7) it was stated that structured securities that qualify as leverage product according to Art. 62 para 2 MiFID II delegated regulation 2017/565 are to be filed as "Client with comprehensive knowledge of and / or experience with financial products (3)".
• On slide 13 a further note has been added stating that the criterion "Client Needs" will be supplemted by the aspect of sustainable investment (ESG) in the future.

Manufacturers are kindly asked to consider these aspects when providing target market definitions to German distributors.

(as of 21 May 2021)