Interactive brokers screws EU customers

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Topic Author
Citi
Posts: 15
Joined: Mon Oct 26, 2015 6:12 am

Interactive brokers screws EU customers

Post by Citi » Mon Jun 18, 2018 1:19 pm

Interactive brokers no longer allows to buy US domiciled ETFs for EU customers due to EU regulations. What is unacceptable is that the change occurred overnight couple days ago without a notice and I find some weird stories online where people cannot close they short positions due to that.

It is difficult to find reliable information online yet, but there might be an option for some of the investors to be treated as a Professional clients. Any chance someone here have more information about that and could answer the fallowing questions:

1. What are the procedures to gain Professional investor status.
2. Are there any downsides to the Professional investor status.

I understand that the fastest way to gain the answer is to contact IB, but I believe these questions are relevant to a number of forum members, so I posted tham here. Also, thanks to Bogleheads philosophy such problem is not an urgent one at least for me:) It seem that you can still hold and sell securities at IB, but buying securities is fobbiden.

rich126
Posts: 933
Joined: Thu Mar 01, 2018 4:56 pm

Re: Interactive brokers screws EU customers

Post by rich126 » Mon Jun 18, 2018 1:29 pm

While I can understand your frustration, it doesn't sound like IB was the initiator of this action. Maybe it was done over night but I'd imagine there was warning prior to that.

A while ago (March 2018) there was this forum posting talking about the various issues https://www.justetf.com/uk/news/etf/us- ... -etfs.html
But still: US-domiciled ETFs are an endangered species. The culprit is PRIIPs – a set of EU investment regulations designed to protect consumers (PRIIPs stands for Packaged Retail Investment and Insurance Products).

PRIIPs require fund providers (including ETFs) to produce a Key Information Document (KID) that enables investors to compare the risks, rewards and costs of different investment products.

European-domiciled UCITS ETFs were ready with their new KIDs when PRIIPs came into force alongside the MiFID II rules at the beginning of 2018. However US-domiciled ETFs did not comply and, as they mostly serve the US market, producing EU-approved information at their own cost is not a priority.

If you already own a US-domiciled ETF then you can hold or sell it but you won’t be able to buy more until a PRIIPs compatible KID becomes available.
I'm not sure if the above is true but good luck. Dealing with all of these EU and US laws isn't easy.

Rich

User avatar
BeBH65
Posts: 1560
Joined: Sat Jul 04, 2015 7:28 am

Re: Interactive brokers screws EU customers

Post by BeBH65 » Mon Jun 18, 2018 2:07 pm

The above seems correct.
Many brokers already complied with the regulations in January, with or without advance warning.
Interactive Brokers seems to implement this with some delay now.


It is my understanding that you forego a lot of legal protection if you request Professional investor status.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

TedSwippet
Posts: 2510
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Interactive brokers screws EU customers

Post by TedSwippet » Mon Jun 18, 2018 3:08 pm

Citi wrote:
Mon Jun 18, 2018 1:19 pm
Interactive brokers no longer allows to buy US domiciled ETFs for EU customers due to EU regulations.
As already mentioned above, this sounds like IB have finally woken up to PRIIPS (sigh). Some previous discussions on that in these threads:

MiFID II [European Union - Markets in Financial Instruments Directive] - Bogleheads.org
UK resident non-dom: what's best investment location? - Bogleheads.org
Will the expense ratio of VWRD ever drop? (NRA) - Bogleheads.org

Most EU brokers are of the opinion that few if any US domiciled ETFs plan to produce KIDs that comply with PRIIPS. And anecdotal reports suggest that Vanguard have confirmed that they have no plans to do so.

Topic Author
Citi
Posts: 15
Joined: Mon Oct 26, 2015 6:12 am

Re: Interactive brokers screws EU customers

Post by Citi » Tue Jun 19, 2018 8:24 am

IB failed to warn customers in advance. So it's one of the two: 1) IB intended to fallow EU regulations, but did not inform the EU customers, 2) IB intended to allow EU customers to keep trading, but changed opinion overnight due to some legal issues. Both cases are cases of incompetence that serious hurt their clients.

Anyway, I'm more interested in the consequences of the decision, than the ethics. I asked IB three questions: 1) Can I liquidate my current open positions, 2) Do I need to do so, 3) What are procedures and requirements for professional client status. If anybody is interested, that's the answer I got:
1) You may close your current positions.
If you have any issues closing restricted positions or trading UCITS, please advise the product, exchange and platfor you are using (TWS, Webtrader, etc...) so we may assist.
2) You may currently hold them or close the positions.
3) We are currently looking at possibilities to enable eligible customers to elect to be treated as Professional clients, which would enable them to trade certain products not available to Retail clients.
Unfortunately I do not have a timeframe on this, however, we will inform you as soon we have the information.
The last answer is an indication that they are not ready themselves and it was overnight decision to terminate trading access for EU customers.

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