Our current arrangements for dealing in exchange-traded instruments (ETIs) involve transmission of trades to a third-party stockbroker for execution.
Our stockbroker has processes in place regarding the execution of trades. We conduct additional oversight to help ensure best execution of trades and identify any issues, including checks on the price of executed trades against the price available on the stock exchange.
When executing orders, unless otherwise specifically instructed, the stockbroker will use price as the primary measure of achieving best execution. The following execution factors will be considered (listed in order of priority for a typical trade). Their importance will vary depending on the characteristics of the order received from the client.
Execution factors include:
- Price - Price will be determined with reference to the Trading Venues to which the stockbroker connects and on which the security is traded. They will use automatic execution technology which will source the best price from a range of retail service providers and market makers. Where an electronic price is not available the order will be dealt manually by the stockbroker’s dealing team.
- Cost - for orders where brokerage or exchange fees are applicable, the stockbroker will not seek to pass these on to clients. For international orders, certain costs (e.g. foreign exchange 'FX') may be passed through to the client within the price spread, but the stockbroker deems this to still result in the best overall outcome and hence total consideration for the client. Any relevant commission rates will have been agreed with the client in advance.
- Likelihood of Execution and Settlement - Likelihood of execution is very high due the relationships the stockbroker has forged with its market maker and broker counterparties. Likelihood of settlement is difficult to assess pre-trade, but the stockbroker monitors the settlement performance of each counterparty so there is a historical track record to base this decision on.
- Size - The size of the trade in relation to the liquidity of the stock may have significant influence on the Best Execution process and is directly correlated to the market impact (implicit costs).
- Nature - Consideration will be given to the liquidity of the stock on the order book at the relevant time. Execution may be heavily influenced by the level of on or off order book trading patterns in the stock. These factors plus the size of the order will determine the appropriate execution method. This may include the working of an order into the market place using an appropriate benchmark or immediate execution on an outright bid/offer price, for example.
- Speed - The importance of speed of transactions will vary. For example, to reduce the implicit costs associated with market impact, an order might be worked over a day or more. Different order types and specific instructions may also have a bearing on the speed of execution.
- Other Relevant Considerations - Careful consideration shall be given not just to each element in isolation, but also to the trade-off and interplay between these factors. For example, size against market impact or speed against price, any of which might also be influenced by a client's specific instruction.
The stockbroker will use their own commercial experience and judgement in determining the relative importance of these factors, and in general, will regard price as the most important of these factors for obtaining the best possible result. However, there may from time to time be circumstances for some customers, particular instruments or markets where other factors may be deemed to have a higher priority.
