Regulatory Frequently AskedQuestions78

The KID is a short, standardized, three-page document that must be provided to retail investors before they invest in a PRIIP (precontractual obligation!). It explains the product’s objectives, risks, potential returns, and costs in a clear and comparable way, so investors can make more informed decisions.

As of January 2025, the transaction cost calculations covers the period 2022 up to 2024. Therefore, it is indeed possible that those who started collecting arrival timestamps in 2024, they are still missing this important datapoint for the initial part of the period where transactional data is available. In such a case, one has to deal with several missing arrival timestamps, in which case one must follow the PRIIPs RTS-prescribed waterfall method:

First: Use a justifiable independent price as arrival price if available.

If unavailable: Use the opening price of the same day.

If still unavailable: Use the closing price of the previous day.

Ultimate fallback: Apply the half-spread for the asset class to which the instrument belongs.

Clarification on arrival timestamps: it should equal the time when an order to transact is transmitted to another person. There are the four key timestamps which should be distinguished:

Order timestamp: When the order is created/accepted by the submitting system (e.g., trader/OMS/EMS). Applies to any order type (market, limit, stop, etc.).

Arrival timestamp: When the order arrives at the execution venue or broker’s execution system (i.e., when it becomes actionable for routing/execution).

Execution timestamp: When an execution (fill) occurs, i.e., when the trade is matched/filled.

Settlement date: The contractual date when delivery-versus-payment occurs: securities are delivered and cash is paid.

For regular market orders, the order timestamp equals (approximately) the arrival timestamp. However, for limit orders, these can differ significantly. Hence it is important for the PRIIPs regulation to use the prescribed arrival timestamps. 

The regulation requires a “waterfall” approach: (1) use underlying NAV Data (time series) (2) use NAV of shareclass within same subfund with longest time series (reference share class) (3) use prices of benchmark/basket. Important to use the same time series for both risk s performance scenario calculations.

The KID shows four scenarios: stress, unfavorable, moderate, and favorable. These are based on historical data and illustrate possible outcomes, but are not predictions. All scenarios are shown net of costs and assume reinvestment of dividends/income. Structured products obtain their performance scenarios via Monte Carlo simulation.

Transaction costs are explicit costs or charges incurred when buying or selling investments. They must be calculated on an annualised basis, using an average of transaction costs over the previous 36 months. Where the fund has existed for less than three years, transaction costs must be calculated on a reasonable alternative basis.

Trades are gathered from a variety of systems and repositories: portfolio management systems, order management systems, fund accounting systems, etc...We identified two major categories of issues:

 1) Incorrect Data:

Inclusion of cancelled trades or option exercises, which do not impact slippage calculations and should be excluded.

Timestamp errors, such as using local time instead of a fixed timezone like UTC.

Some participants have corporate actions (stock-splits, dividend payments,...) nested amongst the bulk of the transactions,  

2) Incomplete Data:

Unclear currency denominations, such as confusion between pounds and pence.

Missing MIC codes, which are essential to identify the trading market for trades identified by the ISIN number of the underlying asset.

No. The KID is informational only. It helps investors compare products and understand risks and costs but does not replace professional financial advice.

For a new consumer composite investment, transaction cost estimates must be assessed for reasonableness by comparing them with the transaction costs of consumer composite investments that have a similar structure, investment strategy, and underlying assets.

Costs are calculated in two distinct ways.

First, the reduction in yield is determined; this represents the difference between the gross and net return of the moderate scenario.

Second, when calculating total costs, it’s recommended to use a methodology based on the proportion of the Net Asset Value (NAV). This means that for each annual return under the moderate scenario, every individual cost component is calculated proportionally to the NAV. Entry fees are applied at the start of the investment period, and exit fees at the end.

The SRI combines: Market Risk Measure (MRM); based on Var-Equivalent-Volatility (VEV) using historical return data, and Credit Risk Measure (CRM); probability of issuer default. Both drive the actual SRI.

Risk is summarized with a Summary Risk Indicator (SRI) on a scale from 1 (lowest risk) to 7 (highest risk). This reflects both market risk (volatility of returns) and credit risk (issuer default risk).

• Category I (PE/Real Estate): often quarterly NAVs, higher risk by default (SRI 6)
• Category II (UCITS): straightforward volatility-based risk (VEV using Cornish Ficher formula)
• Category III/IV (Structured Products): complex payoffs, simulation-based risk score.