Suitability framework

Status and purpose of this framework

Rivativ provides research and model portfolios on a non-advisory basis and does not assess suitability or appropriateness for any client or end-investor. This framework is provided only to assist the recipient firm in designing and operating its own assessment process. It is not legal advice, not a substitute for the recipient's own obligations, and not exhaustive.

The recipient is solely responsible for determining which assessment obligations apply to it under the law and regulation governing its activities and its clients, and for applying them. The criteria set out below are examples of the factors a recipient would typically consider; where any additional or different criteria apply under applicable law (including national transpositions of MiFID II and any local rules of the recipient's or the end-investor's jurisdiction), the recipient must apply those as well.

A note on the applicable test: Rivativ's offering is non-advised. Where the recipient or its client uses the research on a purely non-advised, execution-only basis, the relevant MiFID II test may be appropriateness (knowledge and experience only). Where the recipient provides investment advice or portfolio management to its own clients, the fuller suitability test applies. This framework is written around the fuller suitability test so that it also covers the lighter case; the recipient must apply whichever test the law requires for its specific service model.

Manufacturer's target market (MiFID II product governance)

For the purposes of MiFID II product-governance expectations (and the equivalent provisions of the German Wertpapierhandelsgesetz, "WpHG"), Rivativ identifies the following target market for its strategies. The recipient, acting as distributor, must form and document its own target-market assessment and may not rely on Rivativ's.

Positive target market — the strategies are intended for:

Client type: professional clients and eligible counterparties (per se or elective) as defined under MiFID II / WpHG. The strategies are not manufactured for the general retail market.
Knowledge and experience: investors with proven knowledge and practical experience of derivatives, in particular listed options on equity indices and volatility products, and of leveraged, short-option and short-volatility strategies.
Financial situation and ability to bear losses: investors able to bear losses up to and, for the uncovered/net-short strategies, in excess of the capital allocated, without that loss materially impairing their overall financial position.
Risk tolerance and objectives: investors with a high risk tolerance pursuing return-generation or volatility-premium objectives, who understand and accept negatively skewed and potentially open-ended loss profiles.
Investment horizon: investors for whom an exposure that may require active management, margin maintenance, and tolerance of sharp drawdowns is consistent with their objectives.

Negative target market — the strategies are not intended for:

Retail clients without substantial, demonstrable derivatives knowledge and experience;
Investors seeking capital protection, guaranteed returns, or income with low risk;
Investors unable or unwilling to bear a total loss of capital, or losses exceeding capital on the uncovered/net-short strategies;
Investors with a low or medium risk tolerance, or a short loss-bearing horizon;
Investors who cannot meet margin obligations or actively monitor and manage open positions.

The recipient remains responsible for defining the distribution strategy and for ensuring the product reaches only clients within an appropriate target market under the rules applicable to it.

Recipient (distributor) responsibility

If the recipient determines — at its own discretion and on its own legal responsibility — to make the strategies available to clients outside Rivativ's stated professional/ECP target market (for example to retail clients via a white-label arrangement), the recipient is solely responsible for establishing that this is lawful and appropriate, for applying the correct (and stricter) retail protections, suitability/appropriateness tests, disclosures, and product-governance steps, and for any consequences of doing so. Rivativ does not authorise, assess, or assume responsibility for such distribution.

Suitability assessment criteria

The recipient should assess at least the following in respect of each client, applying any further criteria required by applicable law.

Knowledge. Whether the client understands: how listed index and volatility options work; the meaning and consequences of writing (selling) options; leverage, margin, and assignment; the mechanics of the specific strategy (e.g. net-short ratio structures, calendar spreads, 0DTE exposure); and that risk-limiting features do not prevent severe or, in some cases, unlimited loss.

Experience. The client's prior dealing in derivatives — instrument types, volume, frequency, and the period over which the client has traded them — and whether that experience is relevant to short-option and short-volatility strategies specifically, not merely to options in general.

Financial situation and capacity for loss. The client's income, assets (liquid and total), and existing liabilities; the proportion of the client's portfolio that would be exposed; and the client's ability to absorb losses up to total capital, and beyond capital for uncovered/net-short positions, without material detriment. As a matter of prudent practice, exposure to a single strategy of this risk class would typically be limited to a small percentage of the client's overall investable assets; Rivativ does not set this figure, and the recipient must determine an appropriate limit.

Investment objectives. Whether the client's objectives, return expectations, and intended holding period are consistent with a high-risk, actively managed derivatives strategy that can experience sudden and severe drawdowns.

Risk tolerance. Whether the client's stated and demonstrated tolerance for risk genuinely matches the strategy's risk-reward profile — including frequent small gains punctuated by occasional large losses, and (for the net-short strategies) unbounded loss potential.

Client classification thresholds

Unlike the suitability factors above — for which EU/German law sets the criteria but no fixed numbers — client classification under MiFID II / §67 WpHG does use defined thresholds, which the recipient applies when categorising a client:

Per se professional ("large undertaking"): an undertaking qualifies if it meets at least two of three size criteria — a balance sheet total of EUR 20 000 000, net turnover of EUR 40 000 000, or own funds of EUR 2 000 000.
Elective professional (client treated as professional on request): at least two of three criteria must be met — the client has carried out transactions of significant size on the relevant market at an average frequency of 10 per quarter over the previous four quarters; the client's financial instrument portfolio, including cash deposits, exceeds EUR 500 000; or the client has worked in the financial sector for at least one year in a professional position requiring knowledge of the transactions or services envisaged.
The recipient must also follow the prescribed procedure for an elective professional waiver: the client must request professional treatment in writing, the firm must give a clear written warning of the protections that may be lost, and the client must confirm in writing, in a separate document, that it understands the consequences.
Even where a client meets these thresholds, such clients are not presumed to have market knowledge and experience comparable to per se professionals, and the firm must still satisfy itself that the client is capable of making its own investment decisions and understanding the risks involved.

Ongoing assessment and records

The recipient should reassess classification and suitability where circumstances change, should keep clients' categorisation current, and should maintain adequate written records of its assessments and of the target-market determination, as required under applicable law.