Fairmat for KIDsPRIIPs Products The following products categories will need a KID: • Funds and ETF » Category II PRIIPs but the implementation may be postponed to 2020 if already

Fairmat for KIDs

Smart PRIIPs’ KIDs generation and management

for any asset class

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Regulation (EU) No 1286/2014

• As required from the Packaged Retail Investment & Insurance Products (PRIIPs) regulation from the European Parliament, from January 1st 2018 every product’s manufacturer and distributor will provide to retail investors a Key Investment Document (KID) in order to improve the investment decision process.

• Under the new rules financial products are divided into four main categories:

» Category I: products in which the loss may be higher than the capital invested

» Category II: linear products

» Category III: non linear products

» Category IV: products with non observable components.




PRIIPs Products

The following products categories will need a KID:

• Funds and ETF

» Category II PRIIPs but the implementation

may be postponed to 2020 if already subject

to KIID;

• ETC and ETN

» Category II PRIIPs

• Corporate Bonds

» Category II or III PRIIPS;




PRIIPs Products (part II)

• Structured Products, Structured Deposits

» Category III PRIIPs;

• OTC Products

» Category I PRIIPs

• Insurance Life Products

» Category II, III or IV PRIIPs




A KID example




KID – Dissection - I• The “Header and Purpose” section

• The “Product Identification” section: commercial name,

ISIN, issuer contacts, etc.




KID – Dissection – II

• The “What is this Product?” section includes product

specific goals, intended destination, holding period,

benefits etc.




KID – Dissection – III

• The “Risk” section which includes the summary risk

indicator (SRI), calculated from the market risk measure

(MRM) and the credit risk measure (CRM).




KID – Dissection – IV

• Performance scenarios must be calculated by

bootstrapping or Cornish-Fisher expansion

• Scenarios must be consistent with the 10th, 50th and

90th percentiles of return distribution. They must also be

computed for a stressed negative scenario.

• Intermediate periods performances require evaluation of

the value of the investment (re-pricing) at future

intermediate periods.




The costs section• “Costs” section includes the entire costs :

• One-off costs

• Recurring costs

• Exit costs

• Performance fee costs




The impact of costs

• The “Costs” section also contains a table in which the

impact of the cost on the average performance scenario is

calculated.

• Further “How long should I hold it?”, “how to

complain?” and “Other relevant information” sections

follow.




Issues in generating and managing KIDs

• The information needed to generate the complete document is highly

heterogeneous and possibly came from different sources.

Collecting, elaborating, organizing and updating such information is not

straightforward.

• Our goal is making KIDs generation a data-driven process, where,

after an initial setup and customization, every step can be automatized

while maintaining the high level of detail required by the normative.

How?

• Fairmat for KIDs is able to calculate KID quantitative sections, to

include qualitative and contractual information and to merge them

into pdf documents customized and localized as required in a

modular way.




Workflow for KID generation and maintenance


Setup PRIIPs categories

• Payoff Description*

• KID Attributes*

• Parametric PRIIP descriptions*

• Texts and Layout

Product Definition

• Manual or automatic terms input

KID Metrics Calculation

• CRM, MRM, SRI, Scenarios, CostsCost Information

• Fair ValueMarket Data

PDF Documents generation

• Merging with Layout

• Merging with localized texts.

KID Publishing

• KID Repository hosting

• Monitoring

Manufacturer

Information System

• Products Terms

• OTC Terms

Upload on

Third party

distribution

Systems.

* Indicates activities to

be held in a project

setup phase.



Terms attributesTerms attributes – needed to calculate SRI, performance scenarios and

product descriptions – can be easily entered with a GUI personalized for

any product shape

Or can be imported with bulk operations




Customizable payoff templates

• Any product has his own valuation template in which a

detailed representation of the payoff can be expressed with

an algebraic language allowing any payoff shape to be

represented:

• Every template has it own specific terms attributes

which can be populated with the specific product

information.

• Payoff formulas and terms attributes are then merged

and used by our pricing and simulation engines.

• New payoff shapes can be added on the fly into the

system.




Parametric Products Description

Financial product templates also contains text templates

Which can be used to populate the “what is this product /

objective” section of the KID.




Hierarchical management of information

Additional attributes needed to generate KID are handled

hierarchically:

• Global Attributes: Used as default for all generated KIDs

• Template Level Attributes: defined for a category of

products (may override Global attributes)

• Product Level Attribute: defined for a single product

(may override Template and Global attributes)




Localization and text customizationAny text element visualized in the KID is available in the EU

official languages. We provide defaults texts, but they can

be customized at will with the integrated WYSWIG editor.




KIDs’ figures preview

Figures calculated by the platform are calculated on-demand

and can be previewed.




PRIIPs Underying Scenarios Generation

Alternatively FFK can be used for generating the scenarios

underlying the PRIIPs as specified by the RTS. In this

respect:

• Generation Multivariate bootstrapping of spot (levels) and

curves with PCA

• Generation of Cornish-Fisher Scenarios

• Scenarios can be also requested on-demand by third party

solutions via API




Layout and PDF generation

• Document generation uses the XML/XLST technology.

• An XML document generated from KID metrics calculation

attributes, and labels is merged with a customizable XLST

file containing style information (font, colors, logo, layout…)




PRIIPs Monitoring

• Published PRIIPs are daily monitored for market data

events triggering KIDs updates (users are automatically

notified if KIDs need update).




Market Data

Up-to-dated market data are needed to calculate the SRI, the

performance scenarios, the costs and to monitor and update

the KID as necessary.

• Our solution can be configured to be integrated with

customer data (i.e. it can retrieve data from a Bloomberg

data license feed or from a client database)

• Or we can provide needed Market data as service. With

our data partners we are able to cover the following asset

classes

• Equity / FX / rates / commodities

• Funds series and costs

• Credit




Support for upcoming standards

• We are committed to support any technology relevant to

PRIIPs KID generation and dissemination.

• In this respect we already support the European PRIIP

Template (EPT) either as input and as well as output

format.




Integration with Manufacturer Solutions

KIDs management is a process which must be strictly

integrated with the Manufacturer software infrastructure.

• Fairmat for KIDs has a series of API (implemented

through web services) which allows third party

software to operate on KID documents:

– Retrieve published KIDs

– Generate KIDs on-demand

– Monitor KIDs for changes

– Import Deals Data

– Import Market Data




KIDs publishing and dissemination• The manufacturer shall provide updates KIDs for any active PRIIPs to

distributors.

• FFK can generate, automatically maintain and self-host a repository of

all published KIDs in order to simplify the gathering of information by

distributors (by providing and index and a publishing history details of

all published products in xml format). See www.openkid.org for details


http://www.openkid.org/



Dissemination – Distribution Portal

A white-labelled web portal (distribution portal) can be synchronized and

any distribution portal user (your distribution channels) can search for all

PRIIPs or can subscribe to PRIIPs update notifications.




Dissemination – Distribution Portal API

Fairmat Distribution Portal expose a simply REST API for retrieving a given KID in a given language. This can be used to automatize KID gathering from your distributors.For example the followingrequest:

https://dpdemo.fairmat.com/api/Kid/DE000HV8BD10?language=en

Provides the following JSON response:

[{"Isin":"DE000HV8BD10","PublishDate":"2014-07-10T00:00:00","Files":[{"Language":"en","Url":"https://cloud.fairmat.com/openkid/kid/DE000HV8BD10-KID-en.pdf"}]}]

Including a link to a KID.


https://dpdemo.fairmat.com/api/Kid/XS1139722547?language=en



Technology

• FFK is offered as a SaaS cloud solution or it can be

installed on premise.

• Scalability: the system supports horizontal scalability as

computation tasks can be distributed in several machines

in order to support any KIDs generation demand.

• Security: The system uses the HTTPS protocol for the

Web Application and Web Service interactions and SFTP

protocol for FTP interaction. Additional security layers (i.e.

VPN) can be setup if needed.

• Aside web services, custom modules can be written and

integrated into the platform.




Technology – Application Schema




Technology – Infrastructure Schema




Platform Pricing Scheme

Set-up fee + Running Fee

• Setup fee includes products analysis, texts and layout

customization support plus the cost of implementing the needed

payoff shapes (which can be shared by several products).

• Further customization & integration support to be discussed.

• KIDs generation and monitoring is billed on annual basis and

the cost is proportional to the number of PRIIPs to be monitored.

• For further information please contact us ([email protected] or

phone +39-0458012030.


mailto:[email protected]

