I noticed today a flag near some ETF ticker on IB TWS. I had never noticed it before.
After emailing IB, apparently European-based investors are -for the moment- barred from buying any of these mainstream ETFs e.g. SPY, UWM, IWM, GLD, TLT, SHY etc
See the IB reply below.
Anybody else in Europe has this problem?
"
Opening orders from retails investors residing in the European Economic Area (EEA) who attempt to enter an opening order that are associated with a product that does not comply with the EU’s Packaged Retail and Insurance-based Investment Product Regulation (PRIIPS) will be rejected. 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”) which. The KID provides information such as product description, costs, risks & performance.
The products that this applies to have returns associated with a reference value and include derivatives (options and futures), ETFs, ETNs, funds and certain debt instruments. It does not apply to stock, FX and standard bonds.
Orders will be rejected if the manufacturer, or issuer, of the product has decided not to provide the KID required to distribute the product to EEA retail residents. We do not have a timeframe as to when (or if) these will be updated or tradable again.
"
WTF!!! I just checked my IB account and tried to add to my SPY position, this came up:
PRIIP Order Reject Translations
Clients entering opening orders for products covered by the PRIIPs Regulation where the issuer has not provided the required disclosure documents or Key Information Documents (KIDS) will have their order rejected and will receive the following reject message1:
English
This product is currently unavailable to clients classified as ‘retail clients’.
Note: Individual clients and entities that are not large institutions generally are classified as ‘retail’ clients.
There may be other products with similar economic characteristics that are available for you to trade.
That‘s truly beyond insane! Time to leave this mental asylum called EU!
The UK is doing just that but it’s throwing out the baby with the bath water.
Time to return the EU to being a simple free trade area and ditch the euro - but get that past Merkel, Macron, Junker and the other expansionist lunatics …
While this is an inconvenience, it is totally possible to find derivatives, traded on major exchanges in Europe (London, Paris, Frankfurt) which will mirror all these major US-ETFs. Here is an example I am using:
What an irony that our benevolent overlords at the EU protect all European adults from making own decisions by choosing such unfathomably risky financial products like the SPY or the IEF ETF, while at the same time they would still generously allow us to mirror the same products with derivatives. Derivatives which are - by name and nature - far more risky, expensive and illiquid than the product they are trying to mirror.
It´s pure lobbyism for the European financial industry, which would be somehow acceptable if the fantastic EU financial industry would at least be able to offer suitable ETF alternatives. Which they are not. And for those EU ETF products which are available, liquidity is a fraction of their US counterpart.
It´s such a joke!
Leaving Brexit and other political considerations aside, and dealing with the situation as we are facing it…
Thank you Werner.
It is a good idea. My German being rusty I cannot really understand the legal docs (and the English version of the document sends to… an error page). My concern is that compared to a plain Nasdaq100 ETF, I am very wary that there are hidden issues with these derivative products e.g. what happens if Deustche Bank goes bust (far from impossible)? Are there situations where the product might not track its underlying? Where it might just stop and close? Any embedded FX issue (it is quoted in EUR)?
A case in point is the XIV ETP from Credit Suisse that had an abrupt ending earlier this year and that few expected. Yet this possibility was buried in the legal docs and frankly I would not have understood beforehand what an acceleration meant in this context: “If an Acceleration Event occurs at any time with respect to any series of the ETNs, Credit Suisse has the right to accelerate all of the outstanding ETNs of such series” (quote from the legal docs).
Any other thoughts i.e. “European-based” ETFs doing the same job as their US counterparts?
The SP500 tracker seems OK and I can buy it on IB.
However in both cases when looking at fixed income the ticker for the US 1-3 Year treasure does not “work” on IB. I guess it is also only earmarked for “professionals”.
The same is true for every financial product. How much “protection” do you want to enforce on others? To be alive means to take a risk and for some people to win, some other people have to lose, whether smart or dumb, it´s the nature of a zero sum game.
And really - why should the bureaucracy be entrusted to protect someone from learning lessons? What´s wrong with learning lessons and taking the consequences?
Why should we take away freedom of choice from everyone to “protect” the very few?
Where does it start and where does it end? I just don’t get it.
Sorry for the rant, I´m truly frustrated at the moment.
All right, I get the frustration but these are the cards we are dealt with. We are not going to change this regulation anytime soon.
So, let’s focus on solutions and find alternative ways to do what we want.
I suggested ideas above although there are also limitations. Werner also made a suggestion.
Any other?
NB: there is also still hope that the main US providers will eventually be compliant but they are clearly in no rush to do so after 6 months.
Jmh,
thank you for this list. I was not aware of this.
This might be a way around this quagmire.
Just a few leveraged ETFs though. For those, we must still look at derivatives I am afraid.
The actual problem is not the KID requirement. That’s just a 3 page document that the large ETFs could easily produce in all the required languages.
The problem is that every ETF would have to comply with additional EU regulations (UCITS), and the ETF providers are not willing to do that. So I don’t think this issue will be resolved any time soon.
From Bloomberg: “The issuer of the most-popular ETF tracking the S&P 500 will “shortly be in a position” to provide the cost-related data needed to produce a KID, said Malcolm Smith, the global chief operating officer of the SPDR business. Even then, some of the U.S. ETFs may not be available to retail investors anytime soon. “Certain of our U.S. ETFs are only registered for sale to professional investors in certain European markets so we do not feel it would be appropriate for us to create a PRIIP’s compliant KID document for such retail investors until our registrations permit the wider sale of our funds,” Smith said in an email.”