Download Basic principles for the execution of orders in financial instruments

Best Execution Policy (BEP)
Version dated 06/2017
2 General part
2.1 Scope of validity
The following BEP applies for the execution, acceptance or forwarding
of orders which are done on behalf of the client by the Bank for the
purpose of buying and selling financial instruments. Furthermore, it
applies if the Bank buys or sells financial instruments in fulfilment of its
obligations arising from an asset management mandate with the client
for the client’s account.
When executing orders, the Bank will adhere to the laws and
regulations applicable for the respective place of execution. If a provision
of the following BEP is contrary to these laws or regulations, then the
corresponding law or regulation shall apply.
2.2 Fixed price transactions
The best execution provisions set out in this document in regard to price
do not apply if the Bank concludes a purchase contract with the client in
respect of financial instruments at a fixed or definable price (fixed price
transaction). When the Bank acts as a purchaser, it shall take delivery of
the financial instruments from the client and the client acting as a
vendor shall receive the agreed purchase price from the Bank. When the
Bank is a vendor, it shall deliver the financial instruments to the client,
and the client acting as a purchaser shall pay the Bank the agreed
purchase price.
2.3 Primary market transactions
The BEP does not apply to primary market transactions.
2.4 Express instructions of the client
If the client expressly instructs the Bank in respect of the execution of an
order, the Bank will execute the order in accordance with these express
instructions. The client’s attention is expressly drawn to the fact that his
instructions may exempt the Bank from taking the steps that it
implements as standard in its execution policy to obtain the best
possible result for the execution of those orders.
2.6 Market orders
When the client gives an instruction to complete the order at market,
the order shall be executed at the next available price. With a market
order the client instructs the Bank to execute a trade of a certain size as
promptly as possible at the prevailing market price. Discretion may be
taken by the trader to change the client’s order to a limit order where it
can reasonably be assumed under the given market conditions that this
will result in a better price. Nevertheless, it is possible that this might be
disadvantageous to the client in connection with a specific order.
2.7 Limit orders on equity and equity-like instruments
If a client limit order in respect to equity and equity-like instruments
admitted to trading on a regulated market or a trading venue is not
immediately executed on account of current market conditions, the
Bank is obliged to make such orders public to other market participants
except where the client explicitly states that he does not want his order
to be made public. This duty is regarded as having been fulfilled when
such a limit order is transmitted to a Regulated Market (RM) or
Multilateral Trading Facility (MTF). In case of especially large orders, the
Bank reserves the right to decide whether the limit order should be
made public.
3
Application of the policy based on class of financial
instrument and type of service
3.1 Securities and exchange traded derivatives (ETD)
a Securities and exchange traded derivatives include the following
financial instruments: equities, exchange traded funds (ETF), bonds,
exchange traded options & futures as well as structured products.
b
Trading services and activities that are provided regarding the above
instruments:
– Reception and transmission of orders (RTO)
– Execution of orders on behalf of clients
– Dealing against own book
c
Relative importance of execution factors
When executing orders from clients, the Bank will normally give
weight to the factors of price and cost only. This means that the
Bank’s execution criteria focus on the total consideration paid or
received for order as well as the costs incurred by executing the
order (including clearing and settlement fees, plus any other fees).
The Bank may, however, on occasion also consider other factors
such as speed, transaction volume, and the likelihood of execution
and/or settlement where it considers this appropriate or necessary.
NET
The highlighted terms are explained in the section “Definitions” at the
end of this document.
2.5 Pooling of client orders
The Bank shall be entitled to aggregate client orders with own orders or
with orders of any other clients. Orders will only be aggregated where it
is unlikely that the aggregation will be detrimental to the client.
Notwithstanding this, it is possible that the effect of aggregation may
work to the client’s disadvantage in relation to a particular order.
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1 Introduction
Based on the European Financial Markets Regulation, particularly,
Directive 2014/65 (MiFID II) and Regulation 600/2014 (MiFIR), banks are
obliged to take all sufficient steps to obtain the best possible result for
their clients when executing orders in financial instruments or
commissioning a broker to execute them. This document sets out the
order execution policies of LGT Bank Ltd. (hereinafter referred to as the
“Bank”) which shall achieve the best possible result for clients upon the
execution of buy and sell orders for financial instruments.
The information on the order execution policy is customised depending
on the class of financial instrument. A list of the execution venues and
brokers on which the Bank places significant reliance in respect of each
class
of
financial
instrument
can
be
found
at
www.lgt.com/en/publications/downloads/. This list is not exhaustive and
may be changed at any time.
Trades executed outside a trading venue always bear a counterparty
risk. This risk may result in a loss for the client if the counterparty is
not able to fulfil its contractual obligations.
d
Transmitting orders for execution to brokers
Where the Bank transmits an order to a broker for execution, the
Bank will act in the client’s best interests. Thus the Bank will select
an entity or entities most likely to deliver the best possible result for
its clients. In particular, the Bank prefers entities offering Smart
Order Routing (SOR). The selected entities must have execution
arrangements that enable the Bank to comply with its BEP.
3.2 OTC derivatives and Systematic Internalisation (SI)
A list of OTC derivatives and financial instruments on which the Bank
acts as Systematic Internalisation (SI) can be found at
www.lgt.com/en/publications/downloads/. This list is not exhaustive and
may change at any time.
a
Fixed price transactions
When the Bank acts as SI or deals in OTC derivatives, such
transactions shall be considered to be fixed price transactions. The
Bank checks the fairness of the price proposed to the client by
gathering market data used in the estimation of the price of such
product and, when possible, by comparing the price with that of
similar or comparable products.
b
Request for quote
As SI, the Bank provides its clients a quote on request. Such quotes
are only firm for a short moment and for a marketable amount. The
period of time and the marketable amount depend on market
volatility and the market liquidity of each financial instrument.
Depending on those factors, the Bank may need to adjust the
quotation.
c
Limit order
The Bank will make every reasonable effort to execute the order
promptly once the limit is touched. However, there is no guarantee
of fixed price execution, in particular in the event of an unusual
situation or extreme price/rate movement.
4. Monitoring and review
The best execution policy is reviewed annually as well as whenever a
material change arises that has a detrimental effect on the Bank’s ability
to continue consistently achieving the best possible result when
executing its client orders at the place of execution defined in its best
execution policy.
The Bank will inform its clients of any material changes in its
arrangements or its BEP by issuing an update on the Bank’s website
www.lgt.com/en/publications/downloads/.
Where the Bank uses third-party brokers (including affiliates) to execute
transactions, the Bank complies with this obligation by undertaking
periodic reviews of the execution quality of its third-party brokers.
5.2 Cancellations
If the account is credited with an amount subject to payments actually
being received, the Bank may subsequently reverse credit on the
account, irrespective of the period of time that has passed since the
booking was made to the account/custody account. The same also
applies for custody account assets that are booked into the client’s
custody account subject to the securities actually being delivered as well
as for account and custody account bookings that were mistakenly or
incorrectly made. The client acknowledges that the Bank may make such
correction bookings without consulting the client in advance.
The Bank is under no obligation to execute orders for which there is no
coverage/credit limit or which concern balances and custody assets that
have been credited subject to payment/securities actually being received
and where such a payment/securities delivery is still outstanding.
5.3 Unforeseen circumstances
Best execution is a process and not an outcome. This means that, when
the Bank is executing an order for its client, the Bank will execute it in
accordance with this BEP. However, the Bank cannot guarantee that the
best possible result will be obtained in all circumstances and in every
event. The relative importance of the different execution factors may
lead to a different result in a particular transaction.
5.4 Controller
A controller is any person who in fact, either directly or indirectly, at his
own discretion, makes decisions or gives directives with respect to
transactions entered into under this BEP, either by virtue of a power of
attorney or otherwise. The client is obliged to inform the Bank who is
(are) the controller(s) with respect to transactions concluded under this
BEP. In addition, the client undertakes to inform the Bank immediately,
at the latest on the following bank working day, if such information is
no longer correct and true. Without such notification, the Bank assumes
that the respective transaction initiator(s) is (are) also the sole
controller(s). Authorised persons acting as a corporate body or
employees of the client or the controller cannot themselves be
considered to be controllers.
6. Definitions
Financial instruments – as defined in Annex I, Section C of the EU
Directive 2014/65/EU.
Fixed price transaction – is when the Bank concludes a purchase
contract with the client in respect of financial instruments at a fixed or
definable price.
Primary market – is the part of the capital market that deals with issuing
new securities. In particular but not limited to the new issue of bonds,
shares and structured products as well as the subscription and
redemption of funds.
Trading venue – is an RM, MTF or OTF.
OTC – means the execution of financial instruments outside a trading
venue.
NET
For financial instruments executed on a trading venue with a
request for quote system (RFQ) or outside a trading venue, the Bank
will endeavour where possible to obtain competing quotes from
several of its approved counterparties in order to deal on the best
price. It should be noted that with less liquid instruments there
might be only one liquidity provider and therefore only one
available price to deal on. In volatile non-transparent markets, it
may be necessary to accept the first price offered without the
opportunity to obtain or request other prices.
5. Concluding remarks
5.1. Disturbances in the market or trading system
In the event of disturbances in the market or the Bank’s own systems
e.g. due to outages or deficient access in technical systems, in the
Bank’s opinion it may be impossible or inappropriate to execute orders
in any of the ways stated in this BEP. The Bank will thereupon take all
reasonable measures in order to otherwise achieve the best possible
result for the client.
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In particular, the Bank will rely on information provided by SIX
Financial Information when choosing the best Trading Venue. The
Bank may execute the order on a RM, MTF, Organized Trading
Facility (OTF) or outside a trading venue (OTC).
Multilateral trading facility (MTF) – means a multilateral system,
operated by an investment firm or a market operator, which brings
together multiple third-party buying and selling interests in financial
instruments – in the system and in accordance with non-discretionary
rules – in a way that results in a contract in accordance with Title II of
Directive 2014/65/EU.
Limit order – means an order to buy or sell a financial instrument within
its specified price limit or better, and for a specified size.
Regulated market (RM) – means a multilateral system operated and/or
managed by a market operator, which brings together or facilitates the
bringing together of multiple third-party buying and selling interests in
financial instruments – in the system and in accordance with its nondiscretionary rules – in a way that results in a contract in respect of the
financial instruments admitted to trading under its rules and/or systems,
and which is authorised and functions regularly and in accordance with
Title III of Directive 2014/65/EU.
Organised trading facility (OTF) – means a multilateral system which is
not a regulated market or an MTF and in which multiple third-party
buying and selling interests in bonds, structured finance products,
emission allowances or derivatives are able to interact in the system in a
way that results in a contract in accordance with Title II of Directive
2014/65/EU.
Systematic internaliser (SI) – means an investment firm which, on an
organised, frequent, systematic and substantial basis, deals on own
account when executing client orders outside a regulated market, an
MTF or an OTF without operating a multilateral system.
Smart Order Routing (SOR) – means technologies taking into
consideration the best possible market prices of different trading venues
and systematic internalisers at the point of the execution of the order.
When an order is executed via SOR, the respective trading venue is
labelled as multi-market-capable on the Bank’s list of the execution
venues and brokers.
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NET
Request for quote system (RFQ) – A trading system where one or more
quotes are provided in response to a request for quote submitted by
one or more members or participants. The quote is executable
exclusively by the requesting member or participant. The requesting
member or participant may conclude a transaction by accepting the
quote or quotes provided to it on request.