(12)Directive 85/611/EEC recognises as a sub-category of transferable securities and money market instruments those which embed a derivative element. Embedding a derivative element into a transferable security or money market instrument does not transform the whole financial instrument into a financial derivative instrument which would fall outside the definitions of transferable security or money market instrument. Therefore, it is necessary to make clear whether a financial derivative can be considered embedded in another instrument. In addition, embedding a derivative into a transferable security or money market instrument entails the risk that the rules for derivatives imposed by Directive 85/611/EEC are bypassed. For that reason, the Directive requires identification of the embedded derivative element and compliance with those rules. Given the level of financial innovation, the identification of an embedded derivative element is not always evident. In order to achieve more certainty in this respect, criteria for identifying such elements should be laid down.