Part 1: The Quality of Execution
The Markets in Financial Instruments Directive ('MiFlD') became effective on 1 November 2007. This policy adopted by SG Kleinwort Hambros Bank Limited (“Kleinwort Hambros”) responds to the MiFID requirements.
We categorise the majority of our clients Retail Clients in respect of all the investment services we provide under MiFlD and accord them the relevant protections associated with this categorisation. Kleinwort Hambros has always endeavoured to provide their clients with best execution services and the regulatory obligations introduced by MiFID are fully consistent with our existing commercial practice. It is also recommended that the Kleinwort Hambros entities located outside the EU follow this policy as “best practice” to the extent that this is practical.
When executing orders on your behalf in relation to financial instruments, we will take all reasonable steps to achieve what is called “best execution” of your orders. This means that we will have in place a policy and procedures which are designed to obtain the best possible execution result, subject to and taking into account the nature of your orders, the priorities you place upon us in filling those orders and the market in question and which provides, in our view, the best balance across a range of sometimes conflicting factors. This policy applies, subject to market conditions, when Kleinwort Hambros:
- Receives and transmits client orders;and/or
- Executes orders on a client's behalf.
Kleinwort Hambros is seen as executing orders "on a client’s behalf" where the client legitimately relies on Kleinwort Hambros to protect his or her interests in relation to pricing or other aspects of the transaction that may be affected by how Kleinwort Hambros executes the order. This includes, but it is not limited to, execution of orders undertaken by Kleinwort Hambros under its discretionary mandates to manage client portfolios. Other examples of executing orders "on a client’s behalf" are execution of orders by dealing as agent, execution of orders dealing as risk-less principal, or working orders given by clients.
We will take into consideration a range of different factors which include not just price, but which may also include such other factors as the cost of the transaction, the need for timely execution, the liquidity of the market (which may make it difficult to even execute an order), the size of the order and the nature of the financial transaction including whether it is executed on a regulated market or over the counter.
We will also take into account your understanding and experience of the market in question, your dealing profile, the nature of the dealing service you require of us and the specific and general instructions given to us by you which may prioritise how we are to fill your orders.
In the absence of express instructions from you, we will exercise our own discretion in determining the factors that we need to take into account for the purpose of providing you with “best execution”.
Our commitment to provide you with “best execution” does not mean that we owe you any fiduciary responsibilities over and above the specific regulatory obligations placed upon us or as may be otherwise contracted between us.
Part 2: Order Execution Policy
We have set out in Part Three below information on the criteria which determines how we select the different venues on which we may execute your order and have identified those venues on which we will most regularly seek to execute your orders and which we believe offer the best prospects for affording you best execution. We will also assess, on a regular basis, the quality of execution afforded by those venues on which we execute your orders and whether we need to change our execution arrangements.
In selecting the most appropriate venues for the purpose of executing your orders, we will take into full account the factors relevant to the order, including those identified in Part One above;
(a) what we reasonably assess to be your best interests in terms of executing your orders; and
(b) such other factors as may be appropriate, including the ability of the venue to manage complex orders, the speed of execution, the credit worthiness of the venue and the quality of any related clearing and settlement facilities.
As a Retail Client, we will also provide you with additional details in Part Three regarding:
- the importance that we intend to place on the various factors affecting best execution (such as price, costs, speed, likelihood of execution and settlement, size, nature or any other relevant consideration) and the process by which we determine the importance of these factors; and
- a list of the types of execution venues on which we rely in meeting our obligation to take all reasonable steps to obtain the best possible result for the execution of your orders.
Whilst we will take all reasonable steps to satisfy ourselves that we have processes in place that can reasonably be expected to lead to the delivery of best execution of your orders, there may be circumstances including system failure where we cannot guarantee best execution of every order executed on your behalf.
Our policy, in providing you with best execution, is, so far as possible and subject to the processes set out in Part 3, to exercise the same standards and operate the same processes across all the different markets and financial instruments on which we execute your orders. However, the diversity in those markets and instruments and the kind of orders that you may place with us mean that different factors will have to be taken into account when we assess the nature of our execution policy in the context of different instruments and different markets. For example, there is no formalised market or settlement infrastructure for over the counter transactions. In some markets, price Volatility may mean that the timeliness of execution is a priority, whereas, in other markets that have low liquidity, the fact of execution may itself constitute best execution. In other cases, our choice of venue may be limited (even to the fact that there may only be one platform/market upon which we can execute your orders) because of the nature of your order or of your requirements.
Part 3: Our firms' processes for delivering execution policy
Subject to any specific instructions that may be given by client, when executing orders we will take all reasonable steps to obtain the best possible result for clients taking into account the Execution Factors listed below. We will determine the relative importance of the Execution Factors by using our commercial judgement and experience in light of market information available and taking into account the Execution Criteria.
The Execution Factors that will be taken into account are: price; cost; speed; likelihood of execution and settlement; size; or any other consideration relevant to the execution of the order. Price will have normally a higher relative importance in obtaining the best possible result. However, in some circumstances, for some clients, financial instruments or markets, we may appropriately determine that other Execution Factors are more important than price in obtaining the best possible execution.
The Execution Criteria that will be taken into account are the characteristics of the:
- Financial Instruments that are the subject of that order; and
- Execution venues to which orders can be directed.
Eligible for inclusion on the list of Execution Venues are the following venue types:
- Regulated Markets
- Systematic Internalisers
- Third-party investments firms, brokers and affiliates acting as market makers or liquidity providers or other entities providing similar functions.
- SG Group internal sources of liquidity.
A list of the Execution Venues used by us can be found on our website. This list of Execution Venues is not exhaustive but comprises those Execution Venues on which we place significant reliance. We reserve the right to use other Execution Venues deemed appropriate in accordance with our MiFID order execution policy and may add or remove any Execution Venues from this list. We will regularly assess the Execution Venues available in respect of any products that we trade to identify those that will enable us on a consistent basis, to obtain the best possible result when executing orders. The list of Execution Venues will then be updated, where necessary, following such assessment. We are not required to notify separately our clients of any changes to these venues.
Subject to any specific instructions that may be given by clients, we will use the following methodology in order to select an Execution Venue for an order:
- Subject to proper consideration of the Execution Criteria and Execution Factors, where we believe that we can trade to the advantage of the client (or at no disadvantage to) a SG Group entity or affiliate may be used as the Execution Venue.
- Subject to the above, when placing orders on a Regulated Market or MTF we will select the Execution Venue that we consider the most appropriate.
In all cases, we will consider all sources of reasonably available information, including MTFs, local exchanges, brokers and data vendors to obtain the best possible result for the order.
Methods of Execution
Subject to any specific instructions that may be given by the client we will execute an Order by one of the following methods or combination of methods:
- Directly on a Regulated Market or MTF or, where we are not a direct member of the relevant Regulated Market or MTF, with a third-party participant with whom we have entered into an agreement for handling orders for that Regulated Market or MTF
- Directly with SG Group internal sources of liquidity
- Executing the order with a matching order from another SGH client when this in the best interest of both client and does not leave the clients worse off than it would be the case if the orders were executed on another venue.
Specific Client Instructions
When clients give us a specific instruction as to the execution of an order we will execute the order in accordance with those specific instructions. When instructions relate to only part of the order, we will continue to apply our MiFID order execution policy to those aspects of the order not covered by specific instructions.
Clients should be aware that providing specific instructions to us in relation to the execution of a particular order may prevent us from taking the steps set out in our MiFID order execution policy to obtain the best possible result with respect of the elements covered by those instructions.
Reception and Transmission of Orders
Subject to any specific instructions that may be given by the client, we may transmit for execution an order received from a client to one of our Execution Venue, either an SG Group entity or an external entity, such as a third-party broker. In doing so, we must act in the client’s best interest and also comply with all aspects of this policy.
Monitoring and Review
Compliance with this MiFID order execution policy will be monitored by Kleinwort Hambros on an ongoing basis.
Kleinwort Hambros will review its MiFID order execution annually and clients will be notified of material changes. Also, whenever a material change occurs that affects our ability to obtain the best possible execution, clients will be accordingly notified. We will also update the list Execution Venues when necessary. Clients will not be notified separately of changes to these venues, but a list will be made available on request.
Clients will be deemed to have given consent to our execution policy when they give us orders after 1 November 2007. Discretionary portfolio clients are deemed to have given consent to our execution policy if their investment management agreements are still in place after 1 November 2007.
Financial Instruments – include, but are not limited to:
- Transferable securities;
- Money-market instruments;
- Units in collective investments;
- Various options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments. Financial indices, financial measures or commodities:
- Derivative instruments for the transfer of credit risk; and
- Financial contracts for differences.
MiFID - means the Directive 2004/39/EC of the European Parliament and the Council of 21 April 2004 on Markets in Financial Instruments and any implementing directives and regulations.
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 a way that results in a contract in accordance with the provisions of MiFID.
Order - means an instruction to buy or sell a Financial Instrument which is accepted by Kleinwort Hambros for execution or transmission to a third party.
Regulated Market - 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 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
Order Allocation Policy
• It is not permissible for the Bank to aggregate a client order with an own account order, or with an order from an eligible counterparty, or with another client order, unless:
1. it is likely that the aggregation will not work to the disadvantage of each of the clients concerned; and
2. we have disclosed either orally or in writing to each client concerned, either specifically or in the terms of business, that the effect of aggregation may work on some occasions to its disadvantage
• Clause 28 ‘Aggregation of orders’ in the Terms of Business meets the disclosure requirements in 2 above.
• Given that the Bank is not a proprietary trader, the only likely aggregation of a client order with an own account order would be in the event of an error arising and the correction thereof. In such a situation the client will be given an execution which is at least as good as that he would have obtained should his order have been executed correctly.
• Where orders have been aggregated and part or all of the aggregated order has been executed the allocation of fills should be made promptly (and in any event, by the close of business the same day). If, for any reason, we are not able to allocate the fills concerned promptly, the reason for the delay will be fully documented and recorded by the person responsible for making the allocation.
• Where an aggregated order is executed, in the subsequent allocation procedure unfair preference will not be given to own account orders or to any of those for whom we have dealt; and where a client order and an own account order have been aggregated, priority will be given to satisfying the client order if the aggregate total of all orders cannot be satisfied, unless we can demonstrate on reasonable grounds that without our participation we would not have been able to execute those orders on such favourable terms, or at all.
• A revised allocation may be made in respect of an aggregated order where an error is identified in either the intended basis of allocation or the actual allocation; in such a situation a record of the reason for and basis of the reallocation will be made and recorded in the error log and the re-allocation completed within 1 business day of the error being identified. A revised allocation may also be made where an order is only partially executed resulting in an uneconomic allocation to some clients; in such a case we will take reasonable steps to ensure that a re-allocation is in the best interests of the clients for whom we have dealt.
• Where an aggregated order has been executed which includes one or more client orders a record will be retained of the identity of each client concerned and whether the transaction is to be transacted in whole or in part for a managed account, and if in part, the relevant proportions. In addition a record will be made of the intended allocation as soon as is practicable (where an own account order is aggregated with an order for one or more clients, a record of the intended basis of allocation will be made before the transaction is executed).
• When allocating an aggregated transaction which includes one or more client orders a record will also be made of the date and time of allocation, the relevant product, the identity of each client and eligible counterparty concerned, and the amount allocated to each respective client, eligible counterparty and to the Bank.
• When allocating an aggregated transaction which includes one or more client orders, the Bank will allocate the order on a pro-rata basis. Thus giving the fairest possible outcome in regard to the prices involved in order to ensure best execution in line with the Bank’s best execution policy.
• Where there is a minimum tradeable size and we have not been able to fulfil the entire order, allocation will be made based on multiples of this amount. Where this is inconsistent with allocating to all relevant clients on a pro rata basis, the next most equitable allocation will be applied. This may include allocating a minimum size to each client with the remainder allocated on a pro rata basis. If there is insufficient to allocate to all clients, the time and date of orders may be considered.
• Any records made in respect any aggregated order will be retained for a period of at least 5 years from the date of allocation or subsequent reallocation.