Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents (Text with EEA relevance. )

• 55.A review of the MRM class shall always be carried out following a decision by the PRIIP manufacturer in respect of the PRIIP's investment policy and/or strategy. In those circumstances, any changes to the MRM shall be understood as a new determination of the PRIIP's MRM class, and consequently, be carried out according to the general rules concerning the determination of an MRM class for the PRIIP category.

PART 4

Liquidity risk

• 56.A PRIIP shall be considered as having a materially relevant liquidity risk where either of the following criteria are fulfilled:

• (a) the PRIIP is admitted to trading on a secondary market or alternative liquidity facility and there is no committed liquidity offered by market makers or the PRIIP manufacturer, so that the liquidity depends only on the availability of buyers and sellers on the secondary market or alternative liquidity facility, taking into account that regular trading of a product at one point in time does not guarantee the regular trading of the same product at any other point in time;

• (b) the average liquidity profile of the underlying investments is significantly lower than the regular reimbursement frequency for the PRIIP, when and to the extent liquidity offered by the PRIIP is conditional to the liquidation of its underlying assets;

• (c) the PRIIP manufacturer estimates that the retail investor may face significant difficulties in terms of time or costs for disinvesting during the life of the product, subject to specific market conditions.

• 57.A PRIIP shall be considered illiquid, whether contractually or not, if either of the following criteria are fulfilled:

• (a) the PRIIP is not admitted to trading on a secondary market, and no alternative liquidity facility is promoted by the PRIIP manufacturer or a third party, or the alternative liquidity facility is subject to significant limiting conditions, including significant early exit penalties or discretionary redemption prices, or where there is an absence of liquidity arrangements;

• (b) the PRIIP offers potential early exit or redemption possibilities prior to the applicable maturity, but these are subject to significant limiting conditions, including significant exist penalties or discretionary redemption prices, or to the prior consent and discretion of the PRIIP manufacturer;

• (c) the PRIIP does not offer potential early exit or redemption possibilities prior to the applicable maturity.

• 58.A PRIIP shall be considered liquid in all other cases.

ANNEX III

PRESENTATION OF SRI

Presentation format

• 1.PRIIP manufacturers shall use the format below for the presentation of the SRI in the key information document. The relevant number shall be highlighted as shown depending on the SRI for the PRIIP.

• Image omitted; see official source

Completion guidance with regard to the SRI

• 2.The narrative explanation after the SRI shall briefly explain the purpose of the SRI and the underlying risks.

• 3.Immediately below the SRI, the time frame of the recommended holding period shall be indicated. In addition, a warning shall be included directly below the SRI as set out in the above template in the following cases:

• (a) where the risk of the PRIIP is considered to be significantly higher if the holding period is different;

• (b) where a PRIIP is considered to have a materially relevant liquidity risk, whether this is contractual in nature or not;

• (c) where a PRIIP is considered to be illiquid whether this is contractual in nature or not.

• 4.As applicable for each PRIIP, the narrative explanation shall include:

• (a) a warning in bold font where:
• (i) a PRIIP is considered to have currency risk as referred to in Article 3(2)(c) of this Regulation (Element C);
• (ii) a PRIIP holds a possible obligation to add to the initial investment, (Element D);

• (b) where applicable, an explanation of risks materially relevant to the PRIIP which could not be adequately captured by the SRI (Element E);

• (c) a clarification:
• (i) that the PRIIP holds a (partial) capital protection against market risk where relevant, including a specification of the percentage of the invested capital that is protected (Element F);
• (ii) of the specific conditions of the limitations where the (partial) capital protection against market risk is limited (Element G);
• (iii) that the PRIIP holds no capital protection against market risk, where relevant (Element H);
• (iv) that the PRIIP holds no capital guarantee against credit risk, where relevant (Element I);
• (v) of the specific conditions of the limitations where the protection against credit risk is limited (Element J).

• 5.For PRIIPs offering a range of options for investment, PRIIP manufacturers shall use the format referred to point 1 of this Annex for the presentation of the SRI, indicating all of the risk classes offered from the lowest risk class to the highest risk class.

• 6.For derivatives that are futures, call options and put options traded on a regulated market or on a third-country market considered to be equivalent to a regulated market in accordance with Article 28 of Regulation (EU) No 600/2014, Elements A, B, and, where relevant, H, shall be included.

• 6a.For Category 1 PRIIPs as defined in point 4(b) of Annex II, the terminology used for the narratives explanations accompanying the SRI shall be adjusted, where appropriate, to reflect the specific features of the PRIIP, such as the absence of an initial investment amount.

Narrative explanations

• 7.For the purposes of the SRI presentation, including point 4 of this Annex, the following narrative explanations shall be used, as appropriate:

[Element A] The summary risk indicator is a guide to the level of risk of this product compared to other products. It shows how likely it is that the product will lose money because of movements in the markets or because we are not able to pay you.

[Element B] We have classified this product as [1/2/3/4/5/6/7] out of 7, which is [1=‘the lowest’/2=‘a low’/3=‘a medium-low’/4=‘a medium’/5=‘a medium-high’/6=‘the second-highest’/7=‘the highest’] risk class.

[In addition, insert a brief explanation of the classification of the product with a maximum of 300 characters in plain language]

[An example explanation: This rates the potential losses from future performance at a [1=‘very low’/2=‘low’/3=‘medium-low’/4=‘medium’/5=‘medium-high’/6=‘high’/7=‘very high’] level, and poor market conditions [1, 2=‘are very unlikely to’/3=‘are unlikely to’/4=‘could’/5=‘will likely’/6=‘are very likely to’] impact [our] [the] capacity [of X] to pay you].

[[Where applicable:] Element C, in bold] Be aware of currency risk. You will receive payments in a different currency, so the final return you will get depend on the exchange rate between the two currencies. This risk is not considered in the indicator shown above.

[[Where applicable:] Element D] In some circumstances you may be required to make further payments to pay for losses. (in bold) The total loss you may incur may significantly exceed the amount invested.

[Where applicable:] [Element E] [Other risks materially relevant to the PRIIP not included in the summary risk indicator to be explained with a maximum of 200 characters]

[Where applicable:] [Element F] [You are entitled to receive back at least [insert %] of your capital. Any amount over this, and any additional return, depends on future market performance and is uncertain.]

[Where applicable:] [Element G] [However, this protection against future market performance will not apply if you [..]

• — [Where early exit conditions apply] cash-in before [… years/months/days]]

• — [Where ongoing payments must be made] fail to make your payments in time.

• — [Where other limitations apply: explain these in a maximum of […] characters in plain language.]

[Where applicable:] [Element H] [This product does not include any protection from future market performance so you could lose some or all of your investment.]

[Where applicable:] [Element I] [If (we) (are) not able to pay you what is owed, you could lose your entire investment.]

[Where applicable:] [Element J] [However, you may benefit from a consumer protection scheme (see the section ‘what happens if we are unable to pay you’). The indicator shown above does not consider this protection.]

ANNEX IV

PERFORMANCE SCENARIOS

Number of scenarios

• 1.The performance scenarios under this Regulation which shall show a range of possible returns, shall be the following:

• (a) a favourable scenario;

• (b) a moderate scenario;

• (c) an unfavourable scenario;

• (d) a stress scenario.

• 2.The stress scenario shall set out significant unfavourable impacts of the PRIIP not covered in the unfavourable scenario referred to in point 1(c) of this Annex. The stress scenario shall show intermediate periods where those periods are shown for the performance scenarios under point 1(a) to (c) of this Annex.

• 3.An additional scenario for insurance-based investment products shall be based on the moderate scenario referred to in point 1(b) of this Annex, where the performance is relevant in respect of the return of the investment.

• 4.The minimum investment return shall also be shown not taking into account the situation where the PRIIP manufacturer or party bound to make, directly or indirectly, relevant payments to the retail investor, is not able to pay.

Calculation of unfavourable, moderate and favourable scenario values for the recommended holding period for Category 2 PRIIPs

Case 1: PRIIPs referred to in point 1 of Annex VIII with sufficient historical data

• 5.The following rules shall apply to PRIIPs referred to in point 1 of Annex VIII, where, at the time the calculation is made, the following criteria are satisfied in relation to the length of yearly consecutive historical values for the PRIIP:

• (a) it is greater than 10;

• (b) it is five years longer than the length of the PRIIP’s recommended holding period.

• 6.Where the recommended holding period is five years or less, the unfavourable, moderate and favourable scenarios shall be calculated over the last 10 years from when the calculation is made. Where the recommended holding period is more than five years, the unfavourable, moderate and favourable scenarios shall be calculated over a time period which is equal to the recommended holding period plus five years from when the calculation is made.

• 7.The calculation of the unfavourable, moderate, and favourable scenarios shall include the following steps:

• (a) within the time period specified in point 6 of this Annex, identification of all overlapping sub intervals individually equal in length to the duration of the recommended holding period, and which start or end in each of the months, or at each of the valuation dates for PRIIPs with a monthly valuation frequency, which are contained within that period;

• (b) for PRIIPs with a recommended holding period of more than one year, identification of all overlapping sub intervals individually equal or shorter in length to the duration of the recommended holding period, but equal to or longer than one year, and which end at the end of the time period identified in point 6 of this Annex;

• (c) for each sub interval referred to in points (a) and (b), calculation of the performance of the PRIIP in accordance with the following:
• (i) based on the performance of the PRIIP during the exact duration of each sub interval;
• (ii) net of all applicable costs;
• (iii) on the basis that any distributable income of the PRIIP has been reinvested;
• (iv) by using a linear transformation to obtain the performance in sub intervals shorter than the recommended holding period, in order to render all sub- intervals of comparable length;

• (d) rank the sub intervals identified in accordance with point (a) according to the performance calculated in accordance with point (c), to identify from within those sub intervals the median and best sub intervals in terms of performance;

• (e) rank together the sub intervals identified in accordance with points (a) and (b) according to the performance calculated in accordance with point (c), to identify from within those sub intervals the worst sub interval in terms of performance.

• 8.The unfavourable scenario shall represent the worst evolution of the PRIIP’s value in accordance with i point 7(e) of this Annex.

• 9.The moderate scenario shall represent the median evolution of the PRIIP’s in accordance with point 7(d) of this Annex.

• 10.The favourable scenario shall represent the best evolution of the PRIIP’s value in accordance with point 7(d) of this Annex.

• 11.The scenarios shall be calculated at least on a monthly basis.

Case 2: PRIIPs referred to in point 1 of Annex VIII without sufficient historical data and with the possibility to use a benchmark

• 12.For PRIIPs referred to in point 1 of Annex VIII, the unfavourable, moderate and favourable scenarios shall be calculated as specified in points 6 to 11 of this Annex, using data of a benchmark to supplement the values for the PRIIP less all applicable costs, where:

• (a) the length of PRIIP values do not meet the criteria set out in point 5 of this Annex;

• (b) the benchmark is appropriate to estimate performance scenarios in accordance with the criteria specified in point 16 of this Annex; and

• (c) there is historical data for the benchmark that meets the criteria set out in point 5 of this Annex.

• If the information on the objectives of the PRIIP makes reference to a benchmark, that benchmark shall be used, provided the conditions in the first subparagraph are met.

Case 3: PRIIPs referred to in point 1 of Annex VIII without sufficient historical data and with no benchmark, or with a benchmark without sufficient historical data, or any other Category 2 PRIIP

• 13.For PRIIPs referred to in point 1 of Annex VIII that are not covered by case 1 or case 2 above or any other Category 2 PRIIP, the unfavourable, moderate and favourable scenarios shall be calculated as specified in points 6 to 11 of this Annex using benchmarks regulated by Regulation (EU) 2016/1011 of the European Parliament and of the Council ([^E0012]). Those benchmarks represent the asset classes in which the PRIIP invests or the underlying investments to which the PRIIP is exposed, to supplement the values for the PRIIP or the benchmark referred to in point 12 of this Annex. All asset classes in which the PRIIP could invest more than 25 % of its assets or underlying investments that represent more than 25 % of the exposure shall be considered. Where such a benchmark does not exist, an appropriate proxy shall be used.

• 14.If the PRIIP invests in different asset types or offers exposure to different types of underlying investments and more than one benchmark as referred to in point 13 of this Annex has been identified, the scenarios shall be calculated using a ‘composite benchmark’, considering the weights of the estimated investment in each type of assets or underlying investments.

• 15.For Category 2 PRIIPs for which there is not an appropriate benchmark or proxy with sufficient historical data which meets the criteria set out in point 5 of this Annex for the PRIIP, performance scenarios shall be calculated in accordance with points 21 to 27 of this Annex using 15 years of historical returns of the PRIIP or an appropriate benchmark or proxy.

Cases 2 and 3: Use of appropriate benchmarks or proxies

• 16.In order to assess whether the use of a particular benchmark or proxy is appropriate to estimate the performance scenarios, PRIIP manufacturers shall use the following criteria, provided that such criteria are consistent with the objectives of the PRIIP and the type of assets in which the PRIIP invests or the underlying investments to which the PRIIP offers exposure and are relevant for the PRIIP:

• (a) risk-return profile where the benchmark or proxy and the PRIIP fall into the same category of SRI or volatility and expected return or both;

• (b) expected return;

• (c) asset allocation composition (where the asset composition of the PRIIP reflects a composite index, the reference benchmark or proxy for the purpose of the calculation of performance scenarios shall consistently reflect the weights of the composite index);

• (d) potential assets in which the PRIIP invests, consistent with the investment policy;

• (e) exposure to underlying asset classes;

• (f) geographical exposures;

• (g) sector exposures;

• (h) income distribution of the PRIIP;

• (i) liquidity measures (e.g.: daily trading volumes, bid-ask spreads etc.);

• (j) duration;

• (k) credit rating category;

• (l) volatility or historical volatility or both.

• PRIIP manufacturers may use criteria additional to those listed in the first subparagraph provided they demonstrate that those additional criteria are relevant in terms of the objectives of the PRIIP and the type of assets in which the PRIIP invests or the type of underlying investments to which the PRIIP offers exposure.

• 17.PRIIP manufacturers shall be able to demonstrate the consistency of the benchmarks with the objectives of the PRIIP and shall document their decision, including a clear justification of the benchmark used.

Calculation of the stress scenario for Category 2 PRIIPs

• 18.For Category 2 PRIIPs, the calculation of the stress scenario shall have the following steps:

• (a) identify a sub interval of length w which corresponds to the following intervals: 1 year > 1 year Daily prices 21 63 Weekly prices 8 16 Monthly prices 6 12

• (b) identify for each sub interval of length w the historical lognormal returns rt, where t = t1, t2, …, tw;

• (c) measure the volatility based on the following formula starting from ti = t1 rolling until ti = tH – w +1 where H is the number of historical observations in the period: Image omitted; see official source Where Mw is the count of number of observations in the sub interval and Image omitted; see official source is the mean of all the historical lognormal returns in the corresponding sub interval.

• (d) infer the value that corresponds to the 99th percentile for one year and the 95th percentile for the other holding periods; that value shall be the stressed volatility Image omitted; see official source.

• 19.For Category 2 PRIIPs, the expected values at the end of the recommended holding period for the stress scenario shall be:

• Image omitted; see official source

• Where:

• (a) N is the number of trading periods in the recommended holding period, and where the other terms are defined in point 12 of Annex II;

• (b) zα is a proper selected value of the PRIIP at the extreme percentile that corresponds to 1 % for one year and to 5 % for the other holding periods.

• 20.The stress scenario value shown shall not be better than the value of the unfavourable scenario.

Calculation of scenario values for the recommended holding period for certain Category 1 PRIIPs, Category 3 PRIIPs and Category 4 PRIIPs

• 21.The favourable scenario shall be the value of the PRIIP at the 90^th percentile of an estimated distribution of outcomes over the recommended holding period less all applicable costs.

• 22.The moderate scenario shall be the value of the PRIIP at the 50th percentile of an estimated distribution of outcomes over the recommended holding period less all applicable costs.

• 23.The unfavourable scenario shall be the value of the PRIIP value at the 10th percentile of an estimated distribution of outcomes over the recommended holding period less all applicable costs.

• 24.Where the PRIIP manufacturer considers that there is a material risk that these scenarios may provide retail investors with inappropriate expectations about the possible returns they may receive, they may use lower percentiles than those specified in points 21, 22 and 23 of this Annex.

• 25.For Category 3 PRIIPs, the method to derive the estimated distribution of the PRIIP’s outcomes over the recommended holding period shall be identical to the method specified in points 19 to 23 of Annex II. However, the expected return of each asset shall be the return observed over the period calculated without discounting the expected performance using the expected risk-free discount factor.

• 26.For Category 3 PRIIPs, the following adjustments shall be made for the calculation of the stress scenario compared to the calculation for Category 2 PRIIPs:

• (a) infer the stress volatility Image omitted; see official source based on the methodology defined in points 18(a), (b) and (c) of this Annex;

• (b) rescale historical returns rt, based on the following formula: Image omitted; see official source

• (c) conduct bootstrapping on Image omitted; see official source as described in point 22 of Annex II;

• (d) calculate the return for each contract by summing returns from selected periods and correcting those returns to ensure that the expected return measured from the simulated return’s distribution is as follows: Image omitted; see official source where E[rbootstrapped*] is the new simulated mean.

• 27.For Category 3 PRIIPs, the stress scenario shall be the value of the PRIIP at the extreme zα percentile as defined in point 19 of this Annex of the simulated distribution as set out in point 26 of this Annex.

• 28.For Category 4 PRIIPs, the method set out in point 27 of Annex II shall be used in respect of those factors that are not observed in the market, combined as necessary with the method for Category 3 PRIIPs. The relevant methods for Category 2 PRIIPs set out in points 5 to 20 of this Annex and the relevant methods for Category 3 PRIIPs set out in points 21 to 27 of this Annex shall be used for the relevant components of the PRIIP where the PRIIP combines different components. The performance scenarios shall be a weighted average of the relevant components. Product features and capital guarantees shall be taken into consideration in the performance calculations.

• 29.For Category 1 PRIIPs as defined in point 4(a) of Annex II, and Category 1 PRIIPs as defined in point 4(b) of Annex II that are not traded on a regulated market or on a third- country market considered to be equivalent to a regulated market in accordance with Article 28 of Regulation (EU) No 600/2014, performance scenarios shall be calculated in accordance with points 21 to 27 of this Annex.

Calculation of scenario values for the recommended holding period for other types of Category 1 PRIIPs

• 30.For Category 1 PRIIPs that are futures, call options and put options traded on a regulated market or on a third-country market considered to be equivalent to a regulated market in accordance with Article 28 of Regulation (EU) No 600/2014, performance scenarios shall be shown in the form of pay-off structure graphs. A graph shall be included to show performance for all scenarios for the different levels of the underlying value. The horizontal axis of the graph shall show the various possible prices of the underlying value and the vertical axis shall show the profit or loss at the different prices of the underlying value. For every price of the underlying value, the graph shall show the resulting profit or loss and at which price of the underlying value the profit or loss shall be zero.

• 31.For Category 1 PRIIPs as defined in point 4(c) of Annex II a reasonable and conservative best estimate of the expected values for the performance scenarios set out in points 1(a),(b) and (c) of this Annex at the end of the recommended holding period shall be provided.

• The scenarios selected and shown shall be consistent with and complement the other information contained in the key information document, including the overall risk profile for the PRIIP. The PRIIP manufacturer shall ensure the consistency of the scenarios with internal product governance conclusions, including amongst others, any stress-testing undertaken by the PRIIP manufacturer for the PRIIP, and data and analysis used for the purposes of producing the other information contained with the key information document.

• The scenarios shall be selected to give a balanced presentation of the possible outcomes of the PRIIP in both favourable and unfavourable conditions, but only scenarios that can be reasonably expected shall be shown. The scenarios shall not be selected so as give undue prominence to favourable outcomes at the expense of unfavourable ones.

Calculation of scenario values for intermediate holding periods

• 32.For PRIIPs with a recommended holding period between one and 10 years, performance shall be shown at two different holding periods: at the end of the first year and at the end of the recommended holding period.

• 33.For PRIIPs with a recommended holding period of 10 years or more, performance shall be shown at three holding periods: at the end of the first year, after half of the recommended holding period rounded up to the end of the nearest year, and at the end of the recommended holding period.

• 34.For PRIIPs with a recommended holding period of one year or less, no performance scenarios for intermediate holding periods shall be shown.

• 35.For Category 2 PRIIPs, the values to be shown for the intermediate periods for the unfavourable, moderate and favourable scenarios shall be calculated in accordance with points 5 to 14 of this Annex, using the time period specified in point 6, but based on the outcomes achieved over the intermediate holding period.

• 36.For Category 2 PRIIPs, the values to be shown for the intermediate periods for the stress scenario shall be calculated using the formulas in points 18 and 19 of this Annex with the N defined to be the number of trading periods from the start date to the end date of the intermediate period. Point 20 of this Annex shall also apply to the intermediate periods.

• 37.For PRIIPs as referred to in points 15 and 29 of this Annex, Category 3 PRIIPs and Category 4 PRIIPs, unless point 38 of this Annex applies, the scenario values to be shown for the intermediate holding period shall be estimated by the PRIIP manufacturer in a manner consistent with the estimation at the end of the recommended holding period.

• 38.For Category 1 PRIIPs that are futures, call options and put options traded on a regulated market or on a third-country market considered to be equivalent to a regulated market in accordance with Article 28 of Regulation (EU) No 600/2014, or for PRIIPs referred to in point 90(d) of Annex VI, performance scenarios may be shown at the end of the recommended holding period only.

General requirements

• 39.The performance scenarios of the PRIIP shall be calculated as net of all applicable costs in accordance with Annex VI for the scenario and holding period being presented.

• 40.Performance scenarios shall be calculated using amounts consistent with those used for the calculation of costs as specified in points 90 and 91 of Annex VI.

• 41.For those PRIIPs that are forward contracts, future contracts, contracts for difference or swaps, performance scenarios shall be calculated assuming that the amount specified in point 40 is the notional amount.

• 42.Performance scenarios shall be presented in monetary units. Figures shall by default be rounded to the nearest 10 EUR or relevant currency, unless there are specific payout conditions, such that it could be misleading to round the figures to the nearest 10 EUR in which case the PRIIP manufacturer may present figures to the nearest Euro. Without prejudice to point 7 of this Annex, the monetary figures shall show the sum of the amounts that would be received by the retail investor (net of costs) during the holding period, comprising:

• (a) the payments due at the end of the holding period, including the capital reimbursed;

• (b) the coupons or other amounts received before the end of the holding period, without assuming reinvestment of those amounts.

• 43.For PRIIPs that are forward contracts, future contracts, contracts for difference or swaps, performance scenarios in monetary units shall show the profit or loss obtained in the holding period.

• 44.Performance scenarios shall also be presented in percentage terms, as the average annual return of the investment. That figure shall be calculated considering the scenario value as numerator and the initial investment amount or the price paid as denominator in accordance with the following formula:

• (scenario value/initial investment)^(1/T) – 1, if T > 1. Where T is the length of the holding period in years

• 45.For recommended holding periods shorter than one year, performance scenarios in percentage terms shall reflect the projected return over that period, non-annualised.

• 46.For PRIIPs that are forward contracts, future contracts, contracts for difference, or swaps, the percentage return shall be calculated considering the notional amount of the contract and a footnote shall be added to explain that calculation. The formula for the calculation shall be the following:

• (Net profit or loss/Notional Amount)^(1/T) -1, if T> 1.

• The footnote shall indicate that the potential return is calculated as a percentage over the notional amount.

• 47.For insurance based investment products, the following shall apply in addition to the methods referred above including under point 28 of this Annex when calculating the performance scenarios in respect of the investment:

• (a) future profit participation shall be taken into account;

• (b) assumptions on future profit participation shall be consistent with the assumption on the annual rates of return of the underlying assets;

• (c) assumptions on how future profits are shared between the PRIIP manufacturer and the retail investor and other assumptions on future profit sharing shall be realistic and in line with the current business practice and business strategy of the PRIIP manufacturer. Where there is sufficient evidence that the undertaking will change its practices or strategy, the assumptions on future profit sharing shall be consistent with the changed practices or strategy. For life insurers within the scope of Directive 2009/138/EC, those assumptions shall be consistent with the assumptions on future management actions used for the valuation of technical provisions in the Solvency II-balance-sheet;

• (d) where a component of the performance relates to profit participation that is payable on a discretionary basis, that component shall only be assumed in the favourable performance scenarios;

• (e) the performance scenarios shall be calculated on the basis of the investment amounts set out in point 40 of this Annex.

ANNEX V

METHODOLOGY FOR THE PRESENTATION OF PERFORMANCE SCENARIOS

PART 1

General presentation specifications

• 1.The performance scenarios shall be presented in a way that is accurate, fair, clear and not misleading, and that is likely to be understood by the average retail investor.

• 2.In all cases, the following narrative explanations from Part 2 of this Annex shall be included:

• (a) element A;

• (b) element B, which shall appear prominently above the performance scenario table or graph.

• 3.For all PRIIPs except Category 1 PRIIPs referred to in point 30 of Annex IV:

• (a) element C in Part 2 of this Annex shall appear prominently above the performance scenario table;

• (b) information on the minimum investment return shall be stated within the performance scenario table and where appropriate element G in Part 2 of this Annex shall be included. Where a minimum return is guaranteed that minimum return shall be stated in monetary amounts for the holding periods for which the guarantee applies. Where no minimum return is guaranteed, or where the guarantee is only applicable for some but not all holding periods, a narrative shall be included for the relevant holding periods stating that retail investors may lose some or all of the amount invested, or, where applicable, that retail investors may lose more than they invested as set out in Part 3 of this Annex.

• 4.Where a stress scenario is shown, narrative element D in Part 2 of this Annex shall be included.

• 5.For Category 2 PRIIPs, except those referred to in point 15 of Annex IV, narrative explanations shall be included for the unfavourable, moderate and favourable scenarios using element E in Part 2 of this Annex.

• 6.For Category 1 PRIIPs except those referred to in point 30 of Annex IV, Category 2 PRIIPs referred to in point 15 of Annex IV, Category 3 PRIIPs and Category 4 PRIIPs, a brief explanation of the scenarios shown shall be included with a maximum of 300 characters in plain language.

• 7.Elements H, I, J and K in Part 2 of this Annex shall also be included in the case of Category 1 PRIIPs referred to in point 30 of Annex IV.

• 8.Intermediate holding periods shall be shown in accordance with points 32, 33 and 34 of Annex IV. The interim periods may differ depending on the length of the recommended holding period.

• 9.For PRIIPs that do not show performance scenarios at intermediate holding periods narrative element F in Part 2 of this Annex shall be included where relevant.

• 10.Unless otherwise specified, for all PRIIPs except for Category 1 PRIIPs referred to in point 30 of Annex IV, PRIIP manufacturers shall use the templates set out in Part 3 of this Annex to present the performance scenarios, depending on whether it is a single investment or premium PRIIP, a regular payment or premium PRIIP, or a PRIIP as referred to in point 76c of Annex VI.

• 11.The term ‘exit’ shall be used in the performance scenario table to represent the end of the investment, unless this term may be misleading for specific types of PRIIPs, in which case an alternative term may be used, such as ‘terminate’ or ‘surrender’.

• 12.For Category 1 PRIIPs as defined in point 4(b) of Annex II, the terminology used shall be adjusted where appropriate to reflect the specific features of the PRIIP, such as to refer to the notional amount of the PRIIP.

• 13.For insurance-based investment products, additional rows are included in respect of the biometric risk premium and a scenario for the insurance benefits, as illustrated in templates A and B in Part 3 of this Annex. Returns for that scenario shall only be shown in monetary terms.

• 14.For PRIIPs that involve regular payments or premiums, the templates shall also include information on the accumulated investment amount and where applicable the accumulated biometric risk premium, as illustrated in template B in Part 3 of this Annex.

• 15.For PRIIPs which are intended to be held for life, the recommended holding period stated in the performance scenarios may indicate that the PRIIP is intended to be held for life and state the number of years that have been used as an example for the calculation.

• 16.For PRIIPs that are immediate annuities or other PRIIPs that are only intended to pay- out upon the occurrence of the insured event, the performance scenario table shall reflect the following, as appropriate:

• (a) the survival scenarios at the recommended holding period shall reflect the accumulated amount of payments made to the retail investor;

• (b) where intermediate survival scenarios are included, those shall reflect the surrender values and accumulated amount of payments made to the retail investor at that time;

• (c) the insurance event scenarios, such as upon death, shall show the lump sum payment received by the beneficiaries at that time.

• 17.Where the PRIIP is called or cancelled before the end of the recommended holding period according to the simulation, the presentation of the performance scenarios shall be adjusted accordingly, as illustrated in template C in Part 3 of this Annex, and explanatory notes shall be added, in a way that it is clear whether a certain scenario includes an early call or cancellation and that no reinvestment assumption has been applied. In scenarios where the PRIIP is automatically called or cancelled the figures shall be shown in the column ‘If you exit at call or maturity’ of template C in Part 3 of this Annex. The time periods shown for the intermediate holding periods shall be the same for the different performance scenarios and shall be based on the recommended holding period if the PRIIP is not called, which is expected to be aligned with its maturity. Figures for intermediate holding periods shall only be shown for scenarios where the PRIIP has not yet been called or cancelled before or at the end of that intermediate holding period and shall include any exit costs that apply at that time. If the PRIIP would have been called before or at the end of that intermediate holding period based on the simulation no figures shall be shown at that time period.

PART 2

Prescribed narrative elements

[Element A] The figures shown include all the costs of the product itself, (where applicable) [but may not include all the costs that you pay to your advisor or distributor/and includes the costs of your advisor or distributor]. The figures do not take into account your personal tax situation, which may also affect how much you get back.

[Element B] What you will get from this product depends on future market performance. Market developments in the future are uncertain and cannot be accurately predicted.

[Element C] [The unfavourable, moderate, and favourable scenarios shown are illustrations using the worst, average, and best performance of [the product/a suitable benchmark] over the last [x] years.] (for Category 2 PRIIPs except those referred to in point 15 of Annex IV) [The scenarios shown are illustrations based on results from the past and on certain assumptions] (for other types of PRIIPs). Markets could develop very differently in the future.

[Element D] The stress scenario shows what you might get back in extreme market circumstances.

[Element E] This type of scenario occurred for an investment [add reference to benchmark where applicable] between [add dates in years].

[Element F] This product cannot be [easily] cashed in. If you exit the investment earlier than the recommended holding period you do not have a guarantee [and] [you [will/may] have to pay extra costs] (where there are exit costs).

[Element G] The return is only guaranteed if you [describe relevant conditions or refer to where these conditions are described in the key information document, such as the narrative explanations provided in accordance with Annex III].

[Element H] This graph illustrates how your investment could perform. You can compare it with the pay-off graphs of other derivatives.

[Element I] The graph presented gives a range of possible outcomes and is not an exact indication of what you might get back. What you get will vary depending on how the underlying will develop. For each value of the underlying, the graph shows what the profit or loss of the product would be. The horizontal axis shows the various possible prices of the underlying value on the expiry date and the vertical axis shows the profit or loss.

[Element J] Buying this product holds that you think the underlying price will [increase/decrease].

[Element K] Your maximum loss would be that you will lose all your investment (premium paid).

PART 3

Templates

Template A: Single investment or single premium paid

Recommended holding period:	Recommended holding period:	[]	[]	[]
Example Investment:	Example Investment:	[EUR 10 000 ]	[EUR 10 000 ]	[EUR 10 000 ]
(Where applicable) Insurance premium:****	(Where applicable) Insurance premium:****	[monetary amount]	[monetary amount]	[monetary amount]
		If you [exit] after 1 year	If you [exit] after []	If you [exit] after
		(where applicable)	(where applicable)	[recommended holding period]
[Survival] Scenarios	[Survival] Scenarios	[Survival] Scenarios	[Survival] Scenarios	[Survival] Scenarios
Minimum	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]
Stress	What you might get back after costs	[] EUR	[] EUR	[] EUR
	Average return each year	[] %	[] %	[] %
Unfavourable	What you might get back after costs	[] EUR	[] EUR	[] EUR
	Average return each year	[] %	[] %	[] %
Moderate	What you might get back after costs	[] EUR	[] EUR	[] EUR
	Average return each year	[] %	[] %	[] %
Favourable	What you might get back after costs	[] EUR	[] EUR	[] EUR
	Average return each year	[] %	[] %	[] %
(Where applicable) [Death] Scenario	(Where applicable) [Death] Scenario	(Where applicable) [Death] Scenario	(Where applicable) [Death] Scenario	(Where applicable) [Death] Scenario
[Insured event]	What your beneficiaries might get back after costs	[] EUR	[] EUR	[] EUR

Template B: Regular investments or premiums paid

Recommended holding period:	Recommended holding period:	[]	[]	[]
Example Investment:	Example Investment:	[EUR 1 000 ] per year	[EUR 1 000 ] per year	[EUR 1 000 ] per year
(Where applicable) Insurance premium:****	(Where applicable) Insurance premium:****	[monetary amount] per year	[monetary amount] per year	[monetary amount] per year
		If you [exit] after 1 year	If you [exit] after []	If you [exit] after
		(where applicable)	(where applicable)	[recommended holding period]
[Survival] Scenarios	[Survival] Scenarios	[Survival] Scenarios	[Survival] Scenarios	[Survival] Scenarios
Minimum	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]
Stress	What you might get back after costs	[] EUR	[] EUR	[]EUR
	Average return each year	[] %	[] %	[] %
Unfavourable	What you might get back after costs	[] EUR	[] EUR	[] EUR
	Average return each year	[] %	[] %	[]%
Moderate	What you might get back after costs	[] EUR	[] EUR	[] EUR
	Average return each year	[] %	[]%	[] %
Favourable	What you might get back after costs	[] EUR	[] EUR	[] EUR
	Average return each year	[] %	[] %	[] %
Amount invested over time	Amount invested over time	[] EUR	[] EUR	[] EUR
(Where applicable) [Death] Scenario	(Where applicable) [Death] Scenario	(Where applicable) [Death] Scenario	(Where applicable) [Death] Scenario	(Where applicable) [Death] Scenario
[Insured event]	What your beneficiaries might get back after costs	[] EUR	[] EUR	[] EUR
Insurance premium taken over time	Insurance premium taken over time	[] EUR	[] EUR	[] EUR

Template C: PRIIPs referred to in point 76c of Annex VI (Autocallables)

Recommended holding period:	Recommended holding period:	*Until the product is called or matures* This may be different in each scenario and is indicated in the table	*Until the product is called or matures* This may be different in each scenario and is indicated in the table	*Until the product is called or matures* This may be different in each scenario and is indicated in the table
Example Investment:	Example Investment:	[EUR 10 000 ]	[EUR 10 000 ]	[EUR 10 000 ]
		If you [exit] after 1 year	If you [exit] after []	If you [exit] at call or maturity
		(where applicable)	(where applicable)
Scenarios	Scenarios	Scenarios	Scenarios	Scenarios
Minimum	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]	[Monetary amount] or [There is no minimum guaranteed return [if you [exit] before […years/months/days]] (where applicable) . You could lose some or all of your investment [or have to make further payments to cover losses] (where applicable)]
Stress	What you might get back after costs	[] EUR	[] EUR	[] EUR
(product ends after [])	Average return each year	[] %	[] %	[] %
Unfavourable	What you might get back after costs	[] EUR	[] EUR	[] EUR
(product ends after [])	Average return each year	[] %	[] %	[] %
Moderate	What you might get back after costs	[] EUR	[] EUR	[] EUR
(product ends after [])	Average return each year	[] %	[] %	[] %
Favourable	What you might get back after costs	[] EUR	[] EUR	[] EUR
(product ends after [])	Average return each year	[] %	[] %	[] %

ANNEX VI

METHODOLOGY FOR THE CALCULATION OF COSTS

PART 1

List of costs

I. LIST OF COSTS OF INVESTMENTS FUNDS (AIFs AND UCITS)

Costs to be disclosed

One-off costs

• 1.A one-off cost is an entry or exit cost which is either:

• (a) paid directly by the retail investor; or

• (b) deducted from a payment received by or due to the retail investor.

• 2.One-off costs are costs borne by the retail investor that are not deducted from the assets of the AIF or UCITS.

• 3.One-off costs include, but are not limited to, the following types of up-front initial costs that shall be taken into account in the cost amount to be disclosed in the key information document:

• (a) distribution fee, to the extent that the amount is known to the UCITS management company or AIFM; if the actual amount is not known to the UCITS management company or AIFM, the maximum of the possible known distribution costs for the specific PRIIP shall be shown;

• (b) constitution costs (up-front part);

• (c) marketing costs (up-front part);

• (d) subscription fee including taxes.

Recurring Costs

• 4.Recurring costs are payments deducted from the assets of an AIF or UCITS, and represent the following:

• (a) expenses necessarily incurred in their operations;

• (b) any payments, including remunerations, to parties connected with the AIF or UCITS or providing services to them;

• (c) transaction costs.

• 5.Recurring costs include, but are not limited to, the following types of costs that are deducted from the assets of the AIF or UCITS, and shall be taken into account in the cost amount to be disclosed in the key information document:

• (a) all payments to the following persons, including any of the following persons to whom they have delegated any function:
• (i) the UCITS management company or AIFM;
• (ii) directors of the fund if an investment company;
• (iii) the depositary;
• (iv) the custodian(s);
• (v) any investment adviser;

• (b) all payments to any person providing outsourced services to any of the above, including:
• (i) providers of valuation and fund accounting services;
• (ii) shareholder service providers, such as the transfer agent and broker dealers that are record owners of the fund' shares and provide sub-accounting services to the beneficial owners of those shares;
• (iii) providers of collateral management services;
• (iv) providers of prime-brokerage services;
• (v) securities lending agents;
• (vi) providers of property management and similar services;

• (c) registration charges, listing fees, regulatory charges and similar charges, including passporting fees;

• (d) provisioned fees for specific treatment of gain and losses;

• (e) audit fees;

• (f) payments to legal and professional advisers;

• (g) any costs of distribution or marketing, to the extent that the amount is known to the UCITS management company or AIFM; if the actual amount is not known to the UCITS management company or AIFM, the maximum of the possible known distribution costs for the specific PRIIP shall be shown;

• (h) financing costs, related to borrowing (provided by related parties);

• (i) costs of capital guarantee provided by a third party guarantor;

• (j) payments to third parties to meet costs necessarily incurred in connection with the acquisition or disposal of any asset in the fund’s portfolio (including transaction costs as referred to in points 7 to 23c of this Annex);

• (k) the value of goods or services received by the UCITS management company or AIFM or any connected person in exchange for placing of dealing orders;

• (l) where a fund invests its assets in UCITS or AIFs, its summary cost indicator shall take account of the charges incurred in the UCITS or AIFs. The following shall be included in the calculation:
• (i) where the underlying is a UCITS or AIF, its most recently available summary cost indicator figure shall be used, where necessary adjusted to show the actual distribution fee incurred; that figure shall be based either on the figure published by the UCITS or AIF or its operator or the UCITS management company or AIFM, or a figure calculated by a reliable third- party source if more up-to-date than the published figure;
• (ii) the summary cost indicator may be reduced to the extent that there is any arrangement in place (and that is not already reflected in the fund's profit and loss account) for the investing fund to receive a rebate or retrocession of charges from the underlying AIF or UCITS;
• (iii) where the acquisition or disposal of units does not occur at the mid price of the UCITS or AIF, the value of the difference between the transaction price and the mid price shall be taken into account as transaction costs, to the extent that this is not included in the summary cost indicator;

• (m) where a fund invests in a PRIIP other than UCITS or AIFs, its summary cost indicator shall take account of the charges incurred in the underlying PRIIP. The following shall be included in the calculation:
• (i) the most recently available summary cost indicator of the underlying PRIIP shall be included in the calculation, and, where necessary, adjusted to show the actual entry fee incurred;
• (ii) the summary cost indicator may be reduced to the extent that there is any arrangement in place (and that is not already reflected in the fund's profit and loss account) for the investing fund to receive a rebate or retrocession of charges from the underlying PRIIP;
• (iii) in cases where the acquisition or disposal of units does not occur at the mid price of the underlying PRIIP, the value of the difference between the transaction price and the mid price shall be taken into account as transaction costs, to the extent that this is not included in the summary cost indicator;

• (n) where a fund invests in an investment product other than a PRIIP its summary cost indicator shall take account of the charges incurred in the underlying investment product. The PRIIP manufacturer shall either use any published information that represents a reasonable substitute for summary cost indicator or else shall make a best estimate of its maximum level based on scrutiny of the investment product's current prospectus and most recently published report and accounts;

• (o) operating costs (or any remuneration) under a fee-sharing arrangement with a third party to the extent that they have not been already included in another type of cost mentioned above;

• (p) earnings from efficient portfolio management techniques if they are not paid into the portfolio;

• (q) implicit costs incurred by structured investment funds as referred to in Section II of this Annex, and in particular points 36 to 46 of this Annex;

• (r) dividends served by the shares held in the portfolio of the funds, shall the dividends not accrue to the fund.

Incidental costs

• 6.The following types of incidental costs shall be taken into account in the amount to be disclosed:

• (a) a performance–related fee payable to the UCITS management company or the AIFM or any investment adviser, including performance fees as referred to in point 24 of this Annex;

• (b) carried interests as referred to in point 25 of this Annex.

Calculation of specific types of costs of investments funds

Transaction costs

• 7.Transaction costs shall be calculated on an annualised basis, based on an average of the transaction costs incurred by the PRIIP over the previous three years where the average is calculated from all transactions. Where the PRIIP has been operating for less than three years, transaction costs shall be calculated using the methodology set out in points 21, 22 and 23 of this Annex.

• 8.The aggregate transaction costs for a PRIIP shall be calculated as the sum of the transaction costs as calculated in accordance with points 8a to 23a of this Annex in the base currency of the PRIIP for all individual transactions undertaken by the PRIIP in the specified period. This sum shall be converted into a percentage by dividing by the average net assets of the PRIIP over the same period.

• 8a.A minimum of explicit transaction costs, as referred to in point 11a of this Annex, shall be disclosed.

• 9.When calculating the transaction costs incurred by the PRIIP over the previous three years, actual transaction costs must be calculated using the methodology described in points 12 to 18 of this Annex for investments in the following instruments:

• (a) transferable securities as defined by Article 2 of Commission Directive 2007/16/EC ([^E0013]);

• (b) other instruments that there are frequent opportunities to dispose of, redeem, or otherwise realise at prices that are publicly available to market participants and that are either market prices or prices made available, or validated, by valuation systems independent of the issuer.

• 10.Estimates of transaction costs using the methodology described below in points 19 and 20 of this Annex shall be used for investments in other instruments or assets. Transaction costs associated with non-financial assets shall be calculated in accordance with point 20a of this Annex.

Treatment of anti-dilution mechanisms

• 11.Where a PRIIP has a pricing mechanism that offsets the impact of dilution from transactions in the PRIIP itself, the amount of benefit accruing to the ongoing holders of the PRIIP from anti-dilution mechanisms may be deducted from the transaction costs incurred within the PRIIP using the following methodology:

• (a) the monetary amount of any anti-dilution levy, or other payment in connection with a transaction in the PRIIP itself, that is paid to the PRIIP may be subtracted from the total transaction costs

• (b) the benefit to the PRIIP of issuing units (or otherwise enabling investment in the PRIIP) at a price other than the mid price, or of cancelling units (or otherwise enabling redemption of funds from the PRIIP) at a price other than the mid price, provided that the PRIIP itself receives the benefit, shall be calculated as follows and may be subtracted from the total transaction costs:
• (i) the difference between the price of units issued and the mid price, multiplied by the net number of units issued;
• (ii) the difference between the price of units cancelled and the mid-price, multiplied by the net number of units cancelled;

• (c) the anti-dilution benefit shall only be taken into account to the extent that the benefit does not take the total transaction costs below explicit transaction costs;

• 11a.Explicit costs include costs and charges incurred by the PRIIP, and paid out of retail investors’ financial investment in the PRIIP, in order to acquire or dispose of the underlying assets of the PRIIP, such as but not limited to commissions paid to brokers or other intermediaries, stamp duty or market taxes, contract fees and execution fees for OTC derivatives, where relevant.

• 11b.Aggregate explicit costs shall be calculated as the sum of such costs incurred from all transactions undertaken by the PRIIP over the previous three years. That sum shall be converted into a percentage by dividing by the average net assets of the PRIIP over the same period. The minimum explicit costs to be disclosed shall be calculated on an annualised basis based on an average of explicit costs incurred by the PRIIP over the previous three years, with the average calculated from all transactions.

Actual transaction costs

• 12.The actual transaction costs for each transaction shall be calculated on the following basis:

• (a) for each purchase undertaken by the PRIIP, the price of the instrument at the time the purchase order is transmitted to another person for execution (the purchase ‘arrival price’) shall be subtracted from the net realised execution price of the transaction. The resulting value shall be multiplied by the number of units purchased;

• (b) for each sale undertaken by the PRIIP, the net realised execution price of the transaction shall be subtracted from the price of the instrument at the time the order to sell is transmitted to another person for execution (the sale ‘arrival price’). The resulting value shall be multiplied by the number of units sold.

• 13.The net realised execution price shall be determined as the price at which the transaction is executed, including all charges, commissions, taxes and other payments (such as anti-dilution levies) associated with the transaction, either directly or indirectly, where those payments are made from the assets of the PRIIP.

• 14.The arrival price shall be determined as the mid-market price of the investment at the time when the order to transact is transmitted to another person. For orders that are transacted on a day that is not the day that the order was originally transmitted to another person, the arrival price shall be determined as the opening price of the investment on the day of the transaction or, where the opening price is not available, the previous closing price. Where a price is not available at the time when the order to transact is transmitted to another person, the arrival price shall be determined as the most recently available price or, where a recent price is not available, a justifiable independent price or, where a justifiable independent price is not available, the opening price on the day of the transaction or, where the opening price is not available, the previous closing price. Where an order is executed without being transmitted to another person, the arrival price shall be determined as the mid-market price of the investment at the time when the transaction was executed.

• 15.Where information about the time when the order to transact is transmitted to another person is not available (or not available to a sufficient level of accuracy), or where information about the price at that time is not available, a justifiable independent price may be used as the arrival price or, where a justifiable independent price is not available, the opening price of the investment on the day of the transaction or, where the opening price is not available, the previous closing price.

• 16.Costs associated with transactions undertaken by PRIIPs and concerning financial instruments that fall within one of the categories referred to in items 4 to 10 of Section C of Annex I to Directive 2014/65/EU shall be calculated in the following way:

• (a) for instruments that are standardised and where there is regular trading in the instrument itself (for example an index future on a major equity index), transaction costs shall be calculated with reference to the instrument itself. The arrival price shall be determined as the mid-price of the instrument;

• (b) for linear instruments that are customised, and where there is no price transparency or regular trading in the instrument itself, transaction costs shall be calculated with reference to the underlying asset(s). The arrival price shall be calculated based on the price(s) of the underlying assets, using appropriate weightings if there is more than one underlying asset. Where the cost of transacting in the instrument is materially higher than the cost of transacting in the underlying asset, this must be reflected in the transaction cost calculation;

• (c) for non-linear instruments, it is permissible to calculate the transaction costs as the difference between the price paid or received for the instruments and the fair value of the instrument, on the basis described in points 36 to 46 of this Annex.

• 17.In calculating the costs associated with foreign exchange, the arrival price must reflect a reasonable estimate of the consolidated price, and must not simply be the price available from a single counterparty or foreign exchange platform, even if an agreement exists to undertake all foreign exchange transactions with a single counterparty.

• 18.When calculating the costs associated with orders that are initially entered into an auction, the arrival price shall be calculated as the mid-price immediately prior to the auction. In calculating the costs associated with orders that are executed at a pre- determined time, the arrival price shall be calculated at that pre-determined time, even if the order has been transmitted for execution before that time.

Transactions executed on an over-the-counter basis

• 18a.By way of derogation from points 12 to 16 of this Annex for transactions executed on an over-the-counter basis, the actual transaction costs shall be calculated in the following way:

• (a) where a transaction is executed after bid prices and offer prices have been obtained from more than one potential counterparty, the arrival price shall be determined as:
• (i) the mid-point between the best bid price and best offer price, where the best bid price is below the best offer price;
• (ii) the best bid price in the case of a sale or the best offer price in the case of a purchase, where the best bid price is higher than the best offer price;

• (b) where a transaction is executed without both bid prices and offer prices having been obtained, the transaction cost shall be calculated by multiplying the number of units transacted by half the value of the spread between the bid price and the offer price of the instrument, whereas the value of that spread shall be calculated on the following basis:
• (i) from a composite of live market bid/offer quotes, where available;
• (ii) where live market bid/offer quotes are not available they shall be obtained by reference to spreads from either:
• — previous transactions in assets bearing similar characteristics (duration, maturity, coupon, call-/put- ability) and liquidity, using transactions previously executed by the PRIIP manufacturer; or
• — data verified by an independent third-party or an asset valuation from an independent third party.

Transaction costs for other assets

• 19.When estimating transaction costs for assets other than assets as referred to in point 9 of this Annex, the methodology in point 12 of this Annex shall be used and the arrival price shall be calculated as follows:

• (a) for a sale:
• (i) the arrival price shall be calculated as the previous independent valuation price of the asset, adjusted for market movements, where appropriate, using an appropriate benchmark index;
• (ii) where a previous independent valuation price is not available, the transaction costs must be estimated based on the difference between the transaction price and an appraisal of the fair value of the asset prior to sale;

• (b) for a purchase:
• (i) the arrival price shall be calculated as the previous independent valuation price of the asset, adjusted for market movements, where appropriate, using an appropriate benchmark index, where such a price is available;
• (ii) where a previous independent valuation price is not available, the transaction costs must be estimated based on the difference between the transaction price and an appraisal of the fair value of the asset prior to purchase.

• 20.The transaction cost estimate must not be less than the amount of actual identifiable costs directly associated with the transaction.

• 20a.When calculating the costs associated with non-financial assets, the transaction costs shall be calculated as the aggregate of the actual costs directly associated with that transaction including all charges, commissions, taxes and other payments (such as anti-dilution levies), where those assets are made from the assets of the PRIIP. In the case of cost depreciation over a period specified in the PRIIP’s accounting policies, actual costs shall be equal to the cost amounts depreciated over the last three years.

Transaction costs for new PRIIPs

• 21.For PRIIPs that have been operating for less than 3 years and that invest predominantly in assets as referred to in point 9 of this Annex, transaction costs may be calculated either by multiplying an estimate of portfolio turnover in each asset class with the costs calculated according to the methodology referred to in point (c), or as an average of the actual transaction costs incurred during the period of operation and a standardised estimate on the following basis:

• (a) for the highest multiple of six months that the PRIIP has been operating, transaction costs shall be calculated on the basis described in points 12 to 18 of this Annex;

• (b) for the remaining period up to three years, transaction costs shall be estimated by multiplying an estimate of portfolio turnover in each asset class according to the methodology referred to in point (c);