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The PRIIPs and MiFID II regulations that came into effect across all EU member states in 2018 had a big impact on the costs and charges transparency for investment funds. For the first time fund managers where obliged to disclose how much the transactions within the fund portfolio cost to the investors.
As the PRIIPs KID is a pre-sale disclosure, the transaction costs disclosed according to the regulation are "ex ante" (estimated costs as of today), while according to MiFID II regulation the transaction costs disclosed are both "ex ante" and "ex post" (actual costs incurred over the last year).
The PRIIPs RTS provides detailed methodology for calculating transaction costs and definition of the cost components which have to be captured:
2 approaches for calculating transaction costs are described in the PRIIPs KID RTS:
Full PRIIPs approach
The full PRIIPs methodology is based on the client’s transaction data and focuses largely on the intraday prices of liquid assets. The challenge lies in the sourcing of accurate and reliable intraday prices which requires automation and integration with multiple data sources.
New PRIIPs approach
This methodology is also based on the client’s transaction data. This time focusing on assets for which no intraday market prices are available, or where the available mid-prices are inaccurate. In such cases, the recommended practice employs average spreads to calculate transaction costs.
With Capmatix Regulations you can calculate transaction costs using different methods in parallel.
Capmatix Regulations offers a wide array of facilities under a single touch point, for a seamless and hassle-free regulatory experience:
Transaction data can be delivered using the Capmatix regulation standard template or any other customized source
Clients can select one or more market data vendors (e.g. Refinitiv, IHS Markit) to determine arrival prices
Customized rules and thresholds can be set for automatically selecting the "best" arrival price
Fall-back rules for missing or false data can be also be set
Data validation and quality assessment rules can be customized according to client criteria
• "One stop shop" - a comprehensive solution from one single provider
Onetime setup covering complete data integration and system configuration
High coverage of intraday prices for traditional and more exotic financial instruments
On-demand price collection as a function of client's transaction information
High-frequency testing of data quality
Optional integration of required quality levels
Coverage analysis can be provided
Customized reports and various exports can be configured according to client needs