Article 2
Assessment of liquidity risk stemming from the investment services and activities and ancillary services
1. For investment firms performing any of the activities referred to in Section A, points (1) or (2), of Annex I to Directive 2014/65/EU, competent authorities shall assess the level of liquidity needs to be covered by liquid assets by taking into account all of the following:
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(a) |
the specific features of the services provided to clients, in particular the time mismatch between fees received from clients and fees paid to trading platforms for transmission or execution of orders on behalf of clients; |
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(b) |
the liquidity outflow due to increased fees charged to access the trading platforms or less favourable arrangements, including reduced days of accounts payable by the investment firm; |
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(c) |
delays in the payment of fees due from clients. |
2. For investment firms performing any of the activities referred to in Section A, points (3) or (6), of Annex I, to Directive 2014/65/EU, competent authorities shall assess the level of liquidity needs to be covered by liquid assets by taking into account all of the following:
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(a) |
the assessment of intraday liquidity risk for the investment firm’s trading book positions; |
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(b) |
the liquidity risk arising from the risk of a price change of the instrument concerned due to factors related to its issuer or the issuer of the underlying instrument and from the price change of an instrument due to a change in the level of interest rates or to a broad equity market movement unrelated to any specific attributes of the individual securities; |
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(c) |
the specific features of the investment firm’s trading activities, in particular the maturity profile of the transactions, the possible occurrence of long-term transactions and the currencies of the transactions; |
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(d) |
the level of asset encumbrance, the characteristics of the collateral to be provided, in particular its maturity and currency, and whether assets provided as collateral can be re-used or rehypothecated by the investment firm’s counterparties; |
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(e) |
the level of intraday margin that the investment firm may be contractually required to post under normal and stressed circumstances; |
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(f) |
whether the investment firm has sufficient liquid assets or other liquidity resources to maintain trading activities in case of settlement fails or interruption of services at custodians or cash correspondents; |
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(g) |
the failure of a trade to settle on the agreed settlement date because the seller does not deliver the securities or the buyer does not deliver funds at the appropriate time. |
3. For investment firms performing any of the activities referred to in Section A, points (4), (5) or (7), of Annex I, to Directive 2014/65/EU, competent authorities shall assess the level of liquidity needs to be covered by liquid assets by taking into account all of the following:
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(a) |
the investment firm’s contractual arrangements for fees received related to the performance of the clients’ portfolios; |
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(b) |
the time mismatch between fees received by the investment firm from clients, and fees paid by the investment firm to providers of services specifically related to their activities, including market analysis, specialised reports, general or customised portfolio analysis, and aggregation services; |
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(c) |
where the investment firm delegates the management of assets, the time mismatch between fees received by the investment firm from clients and fees paid by the investment firm to the delegated financial entity; |
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(d) |
where another financial entity has formally delegated the management of assets to the investment firm, the time mismatch between fees received by the investment firm from the delegating entity and expenses paid by the investment firm in relation to the delegation; |
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(e) |
contractual arrangements between the investment firm and tied agents, including the timing and recurrence of the payments to the tied agents; |
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(f) |
delays in the payment of fees due from clients. |
4. For investment firms performing any of the activities referred to in Section A, points (8) or (9), of Annex I to Directive 2014/65/EU, competent authorities shall assess the level of liquidity needs to be covered by liquid assets by taking into account all of the following:
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(a) |
the time mismatch between fees received from clients and fees paid to service providers; |
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(b) |
delays in the payment of fees due from clients. |
5. For investment firms performing the ancillary service referred to in Section B, point (2), of Annex I to Directive 2014/65/EU, competent authorities shall assess the level of liquidity needs to be covered by liquid assets by taking into account all of the following:
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(a) |
the outstanding amounts of credits and loans granted to clients; |
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(b) |
the liquidity profile of the collaterals and the market and legal limits to their liquidation; |
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(c) |
the outstanding amounts of defaulted credits and loans granted to clients. |