The Order Execution Policy
The purpose of this document is to provide clients of Brewin Dolphin (“BD” or “we” or “us”) with information about our Order Execution Policy and to seek your consent for this policy. Please note that you provide your consent when you sign or agree to the declaration in the Account Opening Form.
The Order Execution Policy outlines all of the sufficient steps that BD must take to ensure that we achieve ‘best execution’ – that is obtaining the best possible results for you when carrying out transactions on your behalf. This is also sometimes referred to as executing your orders. This is in accordance with MiFID II1 Please refer to section 12.
2. Client Classification
BD clients will be classified as either Retail or Professional, but regardless of classification we will treat all clients as Retail for the purposes of achieving Best Execution or getting the best possible result for you when carrying out trades. We always aim to achieve Best Execution on a consistent basis as outlined in the Order Execution Policy.
3. Specific Client Instructions
If you provide us with a specific instruction to deal for you, it may prevent us from following some or all of the steps outlined in your Order Execution Policy which is designed to obtain the best possible results for you on a consistent basis. When you give us a specific instruction, we will take all sufficient steps to get the best results for you, but there is a risk we cannot achieve best execution, in respect of that aspect covered by your specific instruction.
4. Execution Factors
When dealing for you we will consider the following:
a) Your characteristics, including your regulatory client classification as noted in section 2;
b) The characteristics of the financial instrument concerned and of your order; and
c) Where such orders can be carried out (i.e. the ‘execution venues’).
In assessing the most appropriate route to carry out your order we will consider the following criteria:
c) Speed of execution;
d) Likelihood of execution and settlement;
e) Size and Nature of the order; and
f) Any other consideration relevant to the execution of the order
When dealing in a financial instrument on your behalf we will exercise our discretion in assessing the criteria that we need to take into account to achieve best execution. The relative importance of these criteria will be judged on an order-by-order basis, in line with our commercial experience and with reference to market conditions. In executing orders for Retail Clients, in the absence of any specific instructions, we generally give precedence to the factors that allow us to deliver the best possible result in terms of value to the client. For further information on the relative importance of the execution factors, please see below.
For most liquid instruments, market price will be the overriding factor in attaining best execution. Other factors, such as costs remaining equal, our execution arrangements will drive BD to find the most advantageous (best) price available. This will be the case for the vast majority of orders for Retail Clients where the size of the order does not limit BD’s choice of venue. Certain instruments, such as collectives (Unit Trusts & Open-ended Investment Companies) will have only one price, and one venue. However, in some circumstances for some of our clients, orders, financial instruments or markets, other execution factors may become more important than price in obtaining the best possible execution result.
Where explicit costs (such as exchange fees or settlement/custody costs) would make the overall consideration of the execution prohibitive (e.g. the cost of many small executions on an order book) then this factor may become relatively the most important.
In some circumstances, for example overseas brokerage commissions, other costs may be the most important factor. BD may consider that the large size of an order potentially moving the market, or the fact that requesting an electronic quote that might not be accepted are grounds for considering cost as being of higher importance than other factors.
Speed of execution
Similarly, the speed of execution may be important for some types of order, or client. Speed will be a high priority for a Retail Client executing an order in a liquid equity in a fast market or for an execution only client.
Likelihood of Execution and Settlement
In some instances, BD’s ability to actually execute and settle the order (the Likelihood of Execution and settlement) will be the primary factor to be considered. Where the instrument is illiquid (i.e. rarely traded), the size of the order is prohibitive, or some other factor determines this, the policy will ensure that actually effecting the order takes precedence over other factors. Application of the total cost incurred representing the price of the financial instrument and the cost related to execution for the purpose of achieving “Best Execution” may determine that this factor is given precedence over the immediate apparent price of a financial instrument in so far as it will, in BD’s opinion, deliver a better overall result for the client. Any other relevant considerations will also be taken into account to achieve Best Execution and settlement for the client.
Size and Nature of the order
The best price in a market is usually represented by the opportunity to trade in a particular size (i.e. number of shares, units, contracts etc.) which may not match the size of the client’s order. Where the order is bigger than the typical quoted size, then the part of the order executed over and above the threshold may only be available at a less favourable price. There are various strategies for trading large orders and BD will exercise its discretion where there is no other instruction from the client. Large or illiquid orders will be executed on a manual basis using the skills of our in-house dealing team. In such cases our dealers will source the best available terms by comparing the prices offered by a variety of market participants (including other regulated firms and Multilateral Trading Facilities (MTF)) with reference market data.
Any other consideration relevant to the execution of the order
BD will take into account any other factor relevant to the order that it believes warrants consideration in terms of how that order should be executed. This could be simply whether it is a buy or sell order, or whether the security is dealt in another market.
5. Execution Venues (Competing Markets)
BD will select a set of execution venues which include market counterparties on which it places significant reliance in enabling us to obtain, on a consistent basis, the best possible result for the execution of client orders. The types of venues we use are as follows:
- Markets having regulated market (“RM”) status under MiFID such the London Stock Exchange
- Multilateral Trading Facilities (MTF)
- Retail Service Provider (RSP) network which is automated using market counterparties that have access to RMs and MTFs.
There will be instances when BD passes an order to a counterparty (i.e. a broker) for execution. Typically, this will occur when BD is not a member of the regulated market but may also occur in order to access alternative liquidity sources. In these circumstances, BD remains under an obligation to monitor the counterparty’s performance and does not remove BD’s obligation to obtain the best possible result for BD’s client.
Our selection criteria take into account the following:
- the historic performance, including the quality of executions obtained over a period of time;
- the extent of services that may be provided to enable us to meet our obligations to our clients; and
- market reputation and any matters arising from our due diligence process.
We consider a number of factors to determine the appropriate venue or market counterparty for each asset class and instrument type. The factors include the asset coverage and liquidity provided by these venues/market counterparties in addition to the various costs, exchange fees and any other ancillary charges.
We regularly assess the execution venues available and may add or delete venues in accordance with our obligation to provide you with the best possible execution result on a consistent basis. We will notify you of material2 changes, which would impact our Order Execution Policy. An up to date list of execution venues and the coverage/type of financial instruments executed on these execution venues/market counterparties can be found in Appendix A. You may request a hard copy of the updated list at any time.
As noted above, we may deem it appropriate or advantageous to execute your order outside a Regulated Market or MTF even where the investment (“financial instrument”) concerned is trading on a Regulated Market or MTF.
BD is required to obtain your consent before executing orders outside an RM or an MTF. By agreeing to the Order Execution Policy and our terms and conditions, you are giving your express consent to this requirement.
6. Execution Methodology
We will assess the relevant criteria and any specific instructions provided by you, including selecting the most appropriate venue(s) from those available and execute your order in a timely manner taking into account all relevant aspects of the trade accordingly.
7. Publishing Limit Orders
If you give us an investment instruction at a specified price limit or better and for a specified size (a limit order), then it may not always be possible to execute that order under the prevailing market conditions. We would be required to make your order public (i.e. show the order to the market) in such a case unless you agree that we need not do so. We believe it is in your best interests if we exercise our discretion as to whether or not we make your order public. By agreeing to the Order Execution Policy, you agree that we will not make your order public unless we consider this to be in your best interest to do so.
8. General Dealing Arrangements
In normal market conditions and for orders concerning liquid (i.e. frequently traded) UK equities, BD will use its order management system to identify the best available terms by polling a variety of execution venues including the RSP network. Large or illiquid orders will be executed on a manual basis using the skills of our in-house dealing team. In such cases our dealers will source the best available terms by comparing the prices offered by a variety of market participants (including other regulated firms and MTFs) with reference to market data.
Overseas/International Equity orders will normally be executed on the following basis:
a) For CREST deliverable securities, BD will use its order management system to identify the best available terms by polling available execution venues. Larger orders will be executed on a manual basis as per the arrangements for UK equity orders and through our network of market counterparties.
b) For overseas delivery securities (traded locally in the relevant domestic market), BD will use its order management system to identify the best available terms by polling available execution venues (including other regulated firms). Large or illiquid orders will be executed on a manual basis using our network of local market participants (including MTFs) to source the best available terms. Execution of these international equity orders may also occur through our network of market counterparties.
Collective Investment Schemes / UCITS
BD executes orders in collective investment schemes / UCITS either directly with the fund manager or through a third party for execution. Orders are executed on negotiated terms, not generally available to individual clients.
For smaller debt security orders BD will use its order management system to source the best available terms from a variety of bond market participants. For larger orders and less liquid bond markets, BD will utilise its network of Tier 1 and secondary market participants to source the best available terms. UK Government Bond orders (gilts) may be executed via our order management system or on a negotiated basis via our network of market counterparties.
Exchange Traded Funds (ETFs)
In normal market conditions and for liquid ETF orders, BD will use its order management system to identify the best available terms by polling available execution venues. Larger or less liquid orders will be executed on a manual basis as per the arrangements for UK equity orders.
Structured products are executed with the product provider concerned. In such cases the Product Provider is the sole execution venue for that product. BD follows an established internal process to analyse and compare market data, ensuring a fair price is obtained for BD’s clients.
9. Order Aggregation
We may combine (or ‘aggregate’) an order for our clients with orders of other clients. BD would only aggregate a client order if it was unlikely to work to the overall disadvantage of the client. However, the effect of aggregation may on some occasions work to the client’s disadvantage and may on occasions result in our clients obtaining a worse price than if their order was executed separately.
10. Monitoring and Review
BD will actively monitor compliance with its Order Execution Policy. To assist with the comprehensive review of BD’s best execution arrangements, BD has put in place a set of tools and processes aimed to satisfy our monitoring obligations and provide clients with the best possible execution, including but not limited to:
- Order Execution Policy Committee – A committee established to review the adequacy of and ensure compliance with the firms’ Order Execution Policy.
- Performance Monitoring – Daily monitoring measures to ensure the best possible result for the client orders.
- Review of Market Counterparties – Where we use chosen market counterparties, we take sufficient steps to monitor their performance to ensure we obtain the best possible results for you on a consistent basis.
BD will regularly, and at least annually, review its Order Execution Policy and arrangements, and will notify you of any material changes as outlined in our terms and conditions with you.
Where you have not registered for our on-line valuation service and elected to receive electronic communications from us, we will send you an updated hard copy should we make any material change to the policy. All clients can request a hard copy of our Order Execution Policy at any time by contacting their Investment Manager or Financial Planner.
BD is required to demonstrate, at the request of a client, that it has executed the client’s orders in accordance with this Order Execution Policy. Upon request, BD will produce the necessary analysis detailing the executions for a client for the requested period, to satisfy the client’s request and our regulatory obligations.
Please note that as this Order Execution Policy is required by our Regulator, we cannot accept any amendments to this policy.
11. Regulatory Permissions
BD will maintain the Financial Conduct Authority regulatory permissions required to permit trading as an agency broker.
12. MiFID II Requirements
Below summarises the key requirements under MiFID II and what it means for us and you as our clients:
a) BD has established a robust control environment in order to meet its obligations under MiFID II which requires firms to take all “sufficient steps” to obtain the best possible results for its clients. This indicates a higher standard on firms compared to MIFID I and means that BD is able to identify any potential deficiencies that will prevent us from achieving, on a consistent basis, Best Execution for our clients.
b) Under MiFID II, BD is required to provide you with further information about the consequences when BD executes your order outside a Regulated Market or MTF. This means we have to highlight to you the fact that using market counterparties will result in counterparty risks3. Please note that under our terms and conditions, in the event that the market counterparty defaults in its obligations or it becomes insolvent, we will not be responsible to you for any loss suffered by you by reason of any cause beyond our control.
c) Additionally, BD is obliged to publish annually for each class of financial instruments the top five execution venues in terms of trading volumes where BD executed client orders in the preceding year and also publish information on the quality of execution obtained which includes detailed monitoring of the quality of execution obtained on the execution venues where it executed all client orders in the previous year. This promotes transparency for clients to better understand where their orders have been executed and the overall quality of order execution.
The publication can be found on BD’s website here. Under MiFID II, the first annual report was required to be published in April 2018.
13. Client Declaration
BD operates on the basis that all Customers would be legitimately relying on BD to deliver best execution for all transactions, regardless of how they arise.
By signing or agreeing to the declaration in the account opening form, you (or your authorised intermediary) consent to our Order Execution Policy including those sections that require your prior express consent as noted in section 5.
Please note that if you do not provide your consent to our Order Execution Policy you may be limiting our ability to execute your orders on the most advantageous terms for you. Accordingly, if you do not consent to this Order Execution Policy we may be unable to open an account for you.
Should you require further information or assistance in relation to the Order Execution Policy, or would like BD to demonstrate how best execution has been achieved on any order executed for you, please contact your Investment Manager or Financial Planner, who will be able to assist you and answer your queries within a reasonable time.
1 The Markets in Financial Instruments Directive (MiFID) II aims to improve the way firms like BD comply with regulations in order to strengthen protection of investors. The changes took effect from 3 January 2018.
2 Material Changes, in the context of this Policy, refers to any significant event of an internal or external nature that could impact parameters of best execution such as cost, price, speed, likelihood of execution, size, nature or any other consideration relevant to the execution of the order. An external event that may have a significant impact on execution factors is a merger of two execution venues resulting in a change in the firm’s assessment of the newly formed venue. An internal event that may have a significant impact on execution factors may be a change in execution strategies or policy decisions on certain execution venues.
3 Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligation, for example where the counterparty has inadequate resources to meet the settlement obligation.