ORDER EXECUTION POLICY (POLICY)
This policy summarises the general basis on which Quilter Cheviot Limited (‘we’ or ‘us’) will provide ‘best execution’ when required by the European Union’s Markets in Financial Instruments Directive II (MiFID) and the rules, guidance, principles and codes in the Handbook of Rules and Guidance issued by the UK Financial Conduct Authority or any regulatory body or bodies which may take over their role (FCA).
We have divided the policy into seven sections.
- What the policy covers
- Achieving Best Execution
- Keeping to your instructions
- Choosing an Execution Venue
- How are orders executed
- Updating the policy
- Agreeing to the policy
What the policy covers
What is the purpose of the policy?
We recognise the importance of achieving the best possible result when carrying out trades for you. This is important for maintaining and developing our relationship with you. At all times, we will do our best to act fairly and reasonably in dealing with you. In certain cases where we are providing order execution services to our clients, under MiFID and the FCA rules which apply, we have to develop and keep to a policy on order execution. The purpose of this policy is to set out this responsibility to you in a clear and concise way.
When does the policy apply?
The policy applies if we act on your behalf when carrying out (executing or transmitting) orders relating to any financial instrument which is regulated under MiFID.
The policy will not apply when we are not executing an order on your behalf, for example, if:
- we undertake a trade correction, meaning that we would transact with you on our own account as ‘principal’ on the basis of a published quote and in circumstances where we have already followed our order execution policy, to the extent applicable, in attempting to execute the original trade in question on your behalf;
- we are following your specific instructions to execute your order in a particular way or at a particular price; or
- we are following your specific instructions to execute a specific part or aspect of an order. In such circumstances we would use our judgment to obtain the best possible result.
The policy may apply if, pursuant to your request, we have categorised you as a professional client and we transact with you as counterparty for our own account. Whether the policy applies in these circumstances depends on whether you are legitimately relying on us to protect your interests in relation to the execution of the transaction. In assessing whether you are placing legitimate reliance on us, we will apply the following four-fold test as set out by the European Commission and the FCA:
- whether the transaction in question was initiated by you or by us;
- market practice for the product which is the subject of the transaction and the existence of a convention for clients to ‘shop around’;
- the levels of price transparency within the relevant market; and
- the level of information that we have provided to you and the contents of any existing agreements between us.
We will consider the factors above on a holistic basis when considering whether you place legitimate reliance on us in relation to a transaction between us (as counterparty and for our own account) and you and consequently whether the obligation to provide ‘best execution’ in accordance with this policy will apply.
The financial instruments regulated under MiFID include most types of financial instruments, but do not include all financial instruments (please see FCA Handbook Perimeter Guidance (PERG) (for a definition of the term PERG, see www.quiltercheviot.com/glossary/) 13.4 for more details).
Examples of financial instruments in scope:
Shares, bonds, units in collective investment schemes including Exchange Traded Funds (ETFs)
Examples of financial instruments out of scope:
Foreign Exchange contracts used as a means of payment or foreign exchange contracts that are settled on a ‘spot’ basis.
The policy applies to those transactions we arrange or execute on your behalf.
Achieving ‘best execution’
What does best execution mean?
Best execution means:
- we execute all transactions in a way that achieves the best possible result, taking into account all relevant factors described below. Our policy on best execution is applied across all orders on a consistent basis when orders are executed or transmitted to a third party for execution; we are committed to carrying out all dealing activity in accordance with this policy; and
- we will take steps to monitor, review and update the policy to make sure that it continues to achieve these results, including publication of an Order Execution Quality Report.
Keeping to our best-execution responsibilities under MiFID does not involve a transaction-by-transaction analysis. Instead, we take all sufficient steps to get the best result overall when carrying out orders on your behalf taking account of the factors set out in MiFID and the FCA rules which apply.
What factors do you take into account to achieve best execution?
In achieving best execution, we take into account a number of factors (unless you tell us otherwise as shown in section 3 below). These include:
- price – the price in the market;
- costs – the additional charges for using a particular venue such as the third party brokerage charges, exchange fees, any settlement cost and FX charges;
- speed of execution – will be dependent on the liquidity and volatility of markets;
- likelihood of execution and settlement – reflecting the market liquidity and settlement performance of the counterparty;
- size of order – where an order is larger than the normal market size it will affect the method of execution;
- nature of order – any specific instructions relating to how the order should be executed;
- type and characteristics of the financial instrument;
- characteristics of the possible execution venues; and
any other consideration relevant to executing the order.
Total consideration is generally the main factor for deciding the best result for most liquid investments and is a combination of the price and cost.The overall value to you of a particular transaction may be affected by the other factors listed above.
We will consider all factors when executing your orders and may decide that factors other than price and costs are more important in achieving the best possible result for you. The relative importance of each of the factors will depend on:
- whether you are a retail or professional client;
- any special aims you may have in relation to executing the order;
- the characteristics of your order;
- the characteristics of the financial instruments your order relates to; and
- the characteristics of the venues (if there is more than one) to which your order may be directed.
What is your responsibility when my order is executed for you by another organisation?
We may transmit an order to a non-affiliated third-party broker to execute your order. We have our own procedures in place to periodically review these brokers, taking into account all the factors shown above, to ensure the third-party broker is providing the best results for your orders on a consistent basis. In making this decision we will take account of:
- the execution quality including price, cost, speed, likelihood;
- characteristics for the particular type of instrument including transaction flow and liquidity.;
- the average costs per trade charged for the type of trade; and
- the best execution policy of, and any other guidance issued by, the relevant broker or dealer.
Keeping to your instructions
What happens if I give you specific instructions as to how to execute my order?
If we have accepted your instructions in terms of carrying out an order, we will follow those instructions as far as we are able to.
However, the policy may only apply to some aspects of the order. In such circumstances we would use our judgement to obtain the best possible result. The following are examples.
- If you instruct us to execute an order for you at a limit price, we would still consider cost, speed, likelihood of execution and settlement.
- If you instruct us to execute your order on a particular venue, we would still consider price, cost, speed, likelihood of execution and settlement.
- If you instruct us to execute your order at a particular time or over a particular period, no matter what price is available, we will do our best to execute your order at that time or over that period to obtain the best possible result.
Choosing an execution venue
Which venues will you use?
A ‘venue’ includes a regulated market (RM), a multilateral trading facility (MTF), an organised trading facility (OTF) (for a definition of the terms, MTF and OTF see www.quiltercheviot.com/glossary/) a Systematic Internaliser or third party brokers (counterparties) .Unless we agree with you otherwise, we will use a selection of venues that we will review periodically.
You can find a list of the venues and counterparties we currently use at: http://www.quiltercheviot.com/list-of-execution-venues/. We may update this list from time to time.
What factors do you take into account in deciding which execution venues to use?
Factors that we consider when choosing venues and counterparties include:
- the general prices available;
- depth of liquidity (how easily tradable something is);
- the speed of execution;
- the cost of execution;
- the settlement risk and creditworthiness of the counterparties on the venue or the central counterparty; and
- the quality and cost of clearing and settlement.
How might factors vary between choices of venue, for example a security listed in more than one country?
We would consider the characteristics of the transaction in conjunction with the following factors:
- speed of execution;
- likelihood of execution and settlement (liquidity);
- size of order;
- nature of order;
- type and characteristics of the financial instrument;
- characteristics of the possible execution venues; and
- any other consideration relevant to executing the order.
Please note that the choice of venue may be limited because of the nature of your order or your requirements. For example, when investment products are more illiquid (difficult to convert to cash), there may be little (or no) choice of venue.
How often do you review venues and counterparties?
We review venues we use each year. We review the counterparties that we use on a quarterly basis.
How are orders carried out?
We will ordinarily execute orders when we have direct access to a venue, for example UK equities on the main listing of the London Stock Exchange or Debt (Corporate bonds and UK Gilts) via the Bloomberg MTF.
When executing an order for a listed instrument it will be on or off an order book but subject to the rules of an exchange. For example, ‘on exchange on order book’ could be via the London Stock Exchange electronic order book (SETs). ‘On exchange but off order book’ could be executed with a broker via telephone or electronic means e.g. a Retail Service Provider (RSP) but subject to the rules of the exchange.
UK equity orders in FTSE 350 securities will be routed to the RSP for automatic execution unless they are large in size. When automatic execution is not possible via the RSP due to liquidity or price controls, the orders are forwarded to the dealers for manual execution.
Manual execution of an order by the dealers may be via;
- negotiation with other broker and other exchange members;
- manual request for quote via the RSP (Bloomberg MTF for ETFs);
- use of the London Stock Exchange order book (SETs)
International equity orders will be transmitted to Pershing Securities Limited, a third party broker who can execute the order on our behalf, for example dealing in securities with a primary listing on the New York Stock Exchange.
Debt Instruments (corporate bonds and UK Gilts) will be directed to our dealers to be manually dealt. The execution may be via:
- negotiation with other brokers and other exchange members
- manual request for quote
Exchange Traded Products (ETPs), please refer to UK equity order execution.
Collective Investment Schemes (OIECs/SICAVs/Unit Trusts) will be executed through our preferred platform. If the collective is not available via our preferred platform we will deal directly with the fund manager.
Financial instruments which are not listed will not be subject to exchange rules and considered Over the Counter (OTC).
On occasion, where you have previously provided your consent, we may execute transactions in listed instruments outside of an exchange, OTC, where there is insufficient exchange liquidity, for example illiquid corporate bonds.
Aggregation and allocation of orders
In what circumstances will my orders be aggregated with the orders of your other clients?
We may aggregate orders that you place with us with those of other clients, provided that:
- it is unlikely that the aggregation of the orders and transactions will work overall to the disadvantage of any client whose order is to be aggregated; and
- it is disclosed to each client whose order is to be aggregated that the effect of aggregation may work to that client’s disadvantage in relation to a particular order.
Discretionary decisions to trade may be aggregated by the Investment Manager and in the case of research changes by the dealing desk. The policy and procedures ensure no specific discretionary client is treated differently when consideration is given to the market impact and timeliness of the execution of orders. The creation of an order occurs over a defined period of time. The order aggregation process through averaging as the security price moves over the period will ensure all clients receive the same price. The process treats all clients fairly to ensure overall no one discretionary client receives a better price and therefore disadvantage other discretionary clients.
If we aggregate multiple client orders, we will allocate all orders fairly, including where an aggregated order is partially executed, taking into account the volume and price of the orders.
Updating the policy
How often will you update the policy?
We will review and update the policy annually or where a material change occurs that affects our ability to continue to obtain the best possible result for our clients. You will be notified of policy changes we consider to be material.
How can I get the most recent version of the policy or list of venues?
We post the most recent version of the policy and list of venues on our website. If you would like to receive a hard copy of the most recent policy, please contact us.
How do you monitor effectiveness and adherence to the policy?
A Dealing & Best Execution Governance Forum is responsible for oversight of the delivery of good client outcomes including delivery of best execution. The group receives management information including execution quality and adherence to policy.
Agreeing to the policy
When you sign the application form to become a client, we ask you to confirm that you accept this policy.
How do I contact you about this policy?
If you have any questions about the policy, please contact us by emailing [email protected]. Or, you can contact us by post or phone.
Head of Compliance
Quilter Cheviot Limited
85 Queen Victoria Street,
London, EC4V 4AB
Phone 020 7150 4000