Best Execution Best Execution Policy Execution Arrangements Client Order Handling Arrangements January 2018

Transcription

1 Best Execution Best Execution Policy Execution Arrangements Client Order Handling Arrangements January 2018 Suitability and Appropriateness Policy, Version 1.01 Page 1-1 of 21

2 Contents 1 Best Execution Policy 1.1 General 1.2 Background 1.3 Purpose 1.4 Scope of Policy 1.5 Methods of Execution 1.6 Execution Factors that are taken into consideration 1.7 Receipt and transmission of orders 1.8 Specific client instructions 1.9 Execution venues 1.10 Counterparty assessment 1.11 Roles and responsibilities 1.12 Information provided to clients 1.13 Monitoring 2 Best Execution Arrangements 2.1 Summary 2.2 Scope 2.3 Methods of execution Equities Bonds and Fixed Income Securities Contracts for Differences Units for Collective Investment Schemes 2.4 Execution factors Summary Price Cost Speed Likelihood of execution/settlement Size of order Nature of order Other factors 1-2

3 2.5 Execution venues Regulated Markets Multi-lateral Trading Facilities/ Systematic Internalisers Other venues Review of execution venues 2.6 Client Order Handling Policy Receipt of orders Monitoring of Best Execution Equities Fixed income Order Allocation Policy Client limit orders 2.7 Client request for information Appendix 1 List of Counterparties/Business Partners Appendix 2 A List of Execution Venues 1-3

4 1 Best Execution Policy 1.1 General This Policy must be read in conjunction with the Regulations as listed below (or as amended) and accompanying Guidance. The Policy does not purport to be a full or legal interpretation of the Regulations and accompanying Guidance. Merrion Stockbrokers Limited ( MSB ), trading as Merrion Private and Merrion Fixed Income and its employees must comply with all of the provisions of the Regulations, not just those provisions referred to in the policy. Where individual Regulations are quoted the policy is intended to act as high-level guidelines. In the event of any difference or discrepancy between the procedures and the Regulations, the provisions of the Regulations will prevail. 1.2 Background The Market in Financial Instruments Directive ( MiFID II ) established a regulatory framework for the provision of investment services in financial instruments within scope. MiFID was transposed into Irish law by means of Statutory Instrument 375 of MSB is an authorised investment firm and therefore must comply with the rules and requirements of the Regulations and accompanying Guidelines below. Regulations: MiFID II Directive 2014/65/EU and supporting legislation ( MiFID II ) MiFID II Delegated Regulation (2017/565); Articles ESMA Technical Advice: /2014/1569, Section 2.21 Guidance: ESMA Best Execution Policy, MiFID II, Questions and Answers document published in October It is MSB s policy to act in the best interests of the client at all times and act in accordance with the requirements in the Regulations when executing orders on behalf of clients and/or when transmitting orders to other entities to execute on behalf of MSB clients. When executing orders this is achieved through complying with our execution arrangements outlined herein with a view to taking all sufficient steps to obtain the best possible result for our clients both in the execution of orders on behalf of the client and in the receipt and transmission of orders to a third party. 1.3 Purpose This Policy covers situations where MSB is executing orders, or receiving and transmitting orders for execution for Retail Clients and Professional Clients (both referred to herein as Clients ). The document also details the MSB s execution arrangements and arrangements for the handling of client orders. Under MiFID II MSB will take all sufficient steps to obtain the best possible results for our clients taking account of the execution factors as outlined in section 1.6 below. MSB will determine the importance of each of the execution factors by using their expertise, experience and judgement with all market information available to MSB based upon the criteria which includes the client, the order, 1-4

5 financial instrument and the execution venue to which that order could be directed. In the case of retail clients, price will be assigned a higher priority. This Policy and the associated execution/client order handling arrangements are designed to outline the steps in place to assist staff in seeking to achieve the best possible result when executing client orders and/or transmitting orders to other entities for execution. 1.4 Scope of Policy This Best Execution Policy is designed for Retail and Professional Clients of MSB defined in Schedule 2 of the Regulations. The Best Execution Policy does not apply to Eligible Counterparties, unless they request to be treated (and we accept) as Professional Clients. The financial instruments and the relevant venues in respect of which MSB transact business for clients and which are subject to this Policy are as follows: Orders Executed by MSB Irish Equities and Exchange-Traded Funds ( ETFs ) listed on the Irish Stock Exchange/ London Stock Exchange/ Multilateral Trading Facilities ( MTFs ); UK Equities & ETFs listed on the London Stock Exchange/ MTFs; Other European Equities through MSB s own internal sources of liquidity/ MTFs/ recognised market makers or retail service providers with whom MSB has an established relationship; Bonds and Fixed Income Securities through electronic trading platforms; Units for Collective Investment Schemes through Clearstream or on the secondary market direct with the Transfer Agency for the fund. Orders Received and Transmitted to a Third Party Irish Equities and Exchange-Traded Funds ( ETFs ) sourced through MSB s own internal sources of liquidity/ recognised market makers or retail service providers with whom MSB has an established relationship; UK Equities & ETFs / recognised market makers or retail service providers with whom MSB has an established relationship; Other European Equities through recognised market makers or retail service providers with whom MSB has an established relationship; Overseas equities & American Depositary Receipts ( ADRs ) through recognised market makers or retail service providers with whom MSB has an established relationship; Bonds and Fixed Income Securities through or service providers with whom MSB has an established relationship; Contracts for Differences ( CFDs ) through regulated financial institutions acting as CFD providers. Fixed Income It is the policy of MSB not to transact in Fixed Income Securities for its own account. When a retail or professional client transacts in Fixed Income Securities, the client will be allocated the price MSB obtained on the market from a counterparty and MSB will not benefit from any spread or other advantage. MSB will only be remunerated the appropriate commission rate. 1-5

6 1.5 Methods of Execution Where a client places an order with MSB, subject to any specific instructions, MSB will seek to fill the order by one or more of the following methods: Executing the order from the client on a Regulated Market or a MTF; Executing the order from the client outside a Regulated Market or a MTF; Receiving the order from the client and transmitting the order through a remote broker link on a Regulated Market, a MTF or a Systematic Internaliser; and Receiving an order from the client and transmitting the order to an external entity such as a third-party broker. 1.6 Execution factors taken into consideration Professional Clients: Given the high level of expertise of our Professional clients, the frequency in which they trade and the relationship MSB has with them, in the majority of cases, instructions will be provided by the client with regards to the key characteristics of the order i.e. venue, cost etc. If instructions are not provided, generally the method of executing an order will be discussed with the client and the broad method of execution will be agreed. Where the method of execution is not discussed with the client, a number of execution factors are considered and assessed in order to aim to achieve the Best Execution possible for the client. The execution factors that are taken into consideration include: Price; Costs (explicit external costs such as fees, commission, taxes, etc. and explicit internal costs such as the firm s own remuneration (including commission or spread); Speed; Likelihood of execution/settlement; Size of the order; Nature of the order; and Any other consideration relevant to the execution of the order. The above factors are considered by MSB as part of our process of taking all sufficient steps to obtain the best possible result for a professional client. MSB is focussed on taking all sufficient steps to obtain the best possible result for clients. Where the client specifies the execution factors and/or directs the firm to a particular venue, it may not be possible to achieve Best Execution See section 1.8 below for further details. To the extent that execution factors are not addressed by the customer, MSB will endeavour to achieve Best Execution in accordance with this policy. Retail Clients: In the case of all retail clients, a number of execution factors are considered and assessed in order to aim to achieve the best execution possible for the client. The execution factors that are taken into consideration include: Price; Costs (explicit external costs such as fees, commission, taxes, etc. and explicit internal costs such as the firm s own remuneration (including commission or spread); Speed; Likelihood of execution/settlement; Size of the order; Nature of the order; and 1-6

7 Any other consideration relevant to the execution of the order. These factors are considered by MSB as part of our process of taking all sufficient steps to obtain the best possible result for a retail client. MSB is focussed on taking all sufficient steps to obtain the best possible result for clients. Where the client specifies the execution factors, and/or directs the firm to a particular venue, it may not be possible to achieve Best Execution. See section 1.8 below for further details. To the extent that execution factors are not addressed by the customer, MSB will endeavour to achieve Best Execution in accordance with this policy. MSB considers the importance of execution factors used on its commercial judgement and experience in light of current market information available and taking into account the following: The client; The order; The financial instruments that are the subject of that order; and The execution venues to which that order can be directed. Price will generally merit a high priority in obtaining the best possible result. However, in certain circumstances, for certain clients, orders, financial instruments or markets, MSB may determine that other execution factors are more important. For example, orders may be received above market size or for illiquid instruments. In this instance, the size of the order and the likelihood of execution may take greater priority. MSB looks at the merits of each order when considering how to obtain the best possible result for its clients. MSB determines the importance of the relative factors and prioritises those accordingly, unless instructed otherwise by the client. 1.7 Receipt and transmission of orders MSB may receive client orders by client headed or on a recorded phone line. In the case of orders received by client headed , the client should not consider the order accepted until acknowledgement of same has been received. Any other instructions e.g. a written letter posted to the office address must be verified with a client contact by phone or . Any order given to MSB by the client may be transmitted for execution to an external entity (third-party broker). In doing this MSB continues to act in the client s best interests as such action is more likely to achieve the best possible result. Please refer to Appendix 1: The List of Counterparties & Business Partners. Orders received are either executed by MSB or transmitted to appropriate third parties for execution on the same business day of receipt provided that the order is received prior to a specified cut-off time. If the order is received after the cut-off time, the order will be executed or transmitted for execution on the next business day. As part of their assessment of counterparties, MSB reviews the Best Execution Policy of each counterparty at on-boarding to confirm compliance with its own Best Execution Policy. MSB requests a confirmation from the counterparty on an annual basis of any changes to the Best Execution Policy. Where changes have occurred, MSB reviews the Best Execution Policy to confirm that it is still in compliance with the MSB Best Execution Policy. See section 1.10 below in relation to further details on counterparty assessments. 1.8 Specific client instructions Specific instructions for an order are regularly provided by clients. All instructions will be taken into full consideration when executing the order. Instructions provided could prevent MSB from following this Best Execution Policy in respect of the areas that are covered by the instruction and the execution factors will not be considered with the result that clients will not benefit from our Best Execution 1-7

8 obligations under the Regulations. MSB will continue to follow this Best Execution Policy for those aspects of the order that are not covered by the instructions provided. MSB will not induce a client to instruct it to execute an order in a particular way, by expressly indicating or implicitly suggesting the content of the instruction to the client, when it ought reasonably to know that an instruction to that effect is likely to prevent it from obtaining the best possible result for that client. 1.9 Execution venues MSB uses execution venues and entities that enable us to meet our obligation to take all sufficient steps in obtaining the best possible result on a consistent basis. The types of execution venues that we may use include for each instrument type is as follows. Irish Equities and ETFs Regulated Market (member of the ISE); MTF; Market maker; or Systematic Internaliser. UK Equities & ETFs Regulated Market (member of the LSE); MTF; Market maker; or Systematic Internaliser. Other European Equities MTF; Market maker; or Systematic Internaliser. Overseas equities & ADRs Market maker; or Systematic Internaliser. Fixed Income Securities These securities are generally not listed for trading on a Regulated Market hence will be traded over-the-counter. In executing these securities, MSB will consider the importance of execution factors and will generally seek a number of quotes from leading brokers in the relevant securities. Contracts for Differences Regulated financial institutions acting as CFD providers. Other Instruments Funds (UCITS/SICAV) and Structured Products are generally executed with the manager at a fixed price on any given dealing day. 1-8

9 A list of counterparties/business partners that may be used for each type of instrument are attached in Appendix 1 below. A list of execution venues that MSB may use, and place significant reliance on, to execute client orders is attached as Appendix 2 However, other venues or entities may be used which are appropriate and enable this Policy to be met. MSB do not set commission rates in such a way that discriminates unfairly between venues Counterparty assessment MSB will only transact with counterparties/ business partners with whom Best Execution is achieved. All new counterparties/business partners undergo an assessment to ensure that they are appropriately regulated and of acceptable standing in the financial markets. This assessment includes: Confirming that they are regulated under MiFID and bound by the requirements of Article 21 of the MiFID II Directive; Reviewing the Best Execution Policy of each counterparty to confirm compliance with its own Best Execution Policy; Confirming that there is no negative news/regulatory sanctions that could impact on their ability to provide best execution; and Confirming that they are appropriately set up on the system for transactions (i.e. BIC Code) The Execution Desk and the Fixed Income Desk are to conduct this assessment. Evidence of this assessment is maintained through completion of a checklist. Compliance also monitors Best Execution on an on-going basis via post-trade monitoring via eflow TZ. See section below for arrangements with respect to monitoring Best Execution Roles and responsibilities The Board of Directors of MSB has ultimate responsibility for overseeing the management of the Firm s compliance with applicable laws and regulations and for ensuring that the Firm meets the highest statutory, regulatory and industry standards. The Board has delegated responsibility to the Audit & Compliance Committee who is responsible for the approval of this policy and the implementation of and adherence to the Best Execution Policy including establishing the policy and putting in place appropriate processes and procedures to manage the regulatory requirements under the Regulations. Any material updates arising from the annual review or any interim material updates should be submitted to the Audit & Compliance Committee for review and approval. The Compliance function is an independent second line function that supports the Audit & Compliance Committee and the Board in managing regulatory compliance risk. The Compliance function, in line with the Compliance Monitoring Plan, undertakes a programme of testing and monitoring, to ensure compliance with this policy and related arrangements. This assessment will include a review of the first line testing being undertaken by the Execution Desk to ensure that all alerts have been reviewed and either discounted or escalated in accordance with the Best Execution Procedures. It is the responsibility of all employees of MSB to comply with this Policy and related arrangements. 1-9

10 1.12 Information provided to clients It is a requirement to provide appropriate information on the Best Execution Policy and Execution/ Client Order Handling Arrangements to clients. MSB are required to obtain the client s prior consent to the Policy as part of the firms terms of business. In the event of a material change to the Best Execution Policy and Execution/Client Order Handling Arrangements document, clients will be notified Monitoring MSB Compliance will monitor the effectiveness and adherence to this Best Execution Policy, the execution arrangements and client order handling arrangements on a regular basis in accordance with the Compliance Monitoring Plan. 1-10

11 2 Execution Arrangements 2.1 Summary Within MSB, the methods of executing client orders are well established in order to treat clients fairly, act with honesty and integrity and taking all sufficient steps to achieve the best possible result for clients are of the highest priority for all staff members. These Execution Arrangements are in place to ensure that the practice and methods of executing client orders are outlined and will be adhered to with a view to obtaining best execution. MSB has an obligation to provide best execution to all of its retail and professional clients. Best Execution is defined under MiFID as taking all sufficient steps to achieve the best possible result for a client on a consistent basis. In achieving best execution, several factors are taken into account depending on the nature of the order, client and financial instrument. These factors and the weighting given to each factor will vary for each order depending on the relevant circumstances that exist at the time of order receipt and execution. These arrangements need to be read in conjunction with the information on the client order handling arrangements that has been put in place and is provided to all retail and professional clients of the firm prior to commencing a trading relationship. 2.2 Scope The scope of these arrangements extends to the execution of orders that are received from professional and retail clients. These arrangements also cover the receipt and transmission of client s orders where MSB pass on the order to a third-party entity for execution, which will primarily arise where we receive an order in non-irish/ UK stocks. As a member of the Irish Stock Exchange and the London Stock Exchange, MSB may execute orders either through our own membership or via business partner execution on: regulated markets within the European Union; regulated markets outside the European Union; or instruments not traded on a regulated market. MSB may execute orders with business partners/counterparties as opposed to directly on the exchange for execution factors other than just price e.g. volume or liquidity. MSB chooses business partners on the basis of the fact that they execute orders in accordance with best execution obligations, i.e. the business partner must be able to achieve a result at least matching the result which MSB could reasonably expect to obtain through other business partners. A list of counterparties/business partners is provided in Appendix 1 below. A list of the venues that MSB place significant reliance on in achieving Best Execution for clients is listed in Appendix 2. It is recognised that these venues are subject to change at any time and other venues may be used which will be consistent with the practice of achieving best execution for clients. These arrangements do not go into detail of the operational procedures such as system functionality of our Order Management System or any other trading platform. 2.3 Methods of Execution The following sets out the methods of executing that MSB will undertake across a range of financial instruments. 2-11

12 2.3.1 Equities When a client places an order for equities, MSB may: Promptly place the order at the execution venue. Execution is subject to the rules applied on the relevant market. Orders can be executed only if they match opposite bids or offers. However, if an order cannot be matched in full, partial execution will often be possible. Delay placing the order or place it in successive tranches, if it finds for example that, because of prevailing market conditions, instrument liquidity or the size/nature of the order, this is the most favourable solution for the client. Combine orders and place the aggregated order on the relevant market. Place the order through a business partner with whom MSB has an agreement Fixed Income Securities Bond and fixed income trades are normally executed through electronic trading platforms or service providers with whom MSB has an established relationship. MSB uses Tradeweb and Bloomberg for executing bonds and fixed income securities. Tradeweb is a fixed income trading platform to access Europe s largest sources of bond liquidity. Tradeweb is a Request for Quote platform that polls Europe s largest firm-by-firm negotiated investment providers and provides large liquidity pools, consistently robust quote rate, fast response times and a solid hit-ratio even in the most volatile market conditions. The Fixed Income team may also decide to work the retail client order with a specific counterparty who they are aware have liquidity in a particular instrument. They will do this always to try and achieve the best price for the client Contracts for Differences Orders are executed through MSB or regulated financial institutions acting as Contracts for Difference ( CFD ) providers. Clients trading CFDs will have an existing account with one of the providers Units for Collective Investment Schemes Units for Collective Investment Schemes are traded through Clearstream or on the secondary market direct with the Transfer Agency for the fund. These are traded based on the available NAV entry price (either daily, weekly or monthly). 2.4 Execution factors Summary Whilst the broad weighting that is given to each of the factors associated with providing execution services to achieve a best possible result can be provided, when dealing with clients each order will be dealt with on its merits and one particular execution factor may have a larger or smaller weighting depending on the circumstances of the client, the order and the market. A heavier weighting will be assigned to price for retail clients, as this category of client are price sensitive. Where specific instructions are provided they will be followed. Each of the factors that are taken into consideration when providing execution services to our clients are outlined below. 2-12

13 Depending on the details of the order, client and market conditions, weighting of each of these factors will vary on an ongoing basis Price Price is deemed to be one of the most important factors in providing best execution for retail clients. The importance of price for professional clients will be judged on a case by case basis. When executing a client order, reference will be made to the bid / offer spreads in the markets that the instruments are listed. The price is not the only measure of achieving the best possible result for the client. Generally, this will be because the client places higher weighting on one or more of the other factors outlined below as follows Cost All expenses directly related to the execution of the order incurred by the client as well as any execution venue fee, clearing fee, settlement fee and any other fees paid to third parties involved in the transaction. MSB s own commission and costs for execution of the order are taken into account during the assessment as well. MSB will not structure or charge commission in any way that would discriminate unfairly between the execution venues Speed There will be times when timeliness of execution to a client is important where for example a trade is time dependent. In such situations, a client will be satisfied to receive a price that is not as competitive for the ability to receive a full execution in a timely manner. The significance of this factor will be determined by the communication between the Trader and the client either on a trade-by-trade basis or due to an understanding that has developed in the relationship Likelihood of execution/settlement There will also be times where the likelihood of execution will be a factor in how the best possible result is achieved for a client. Where a client has this as a high priority, there might be a sacrifice made in terms of achieving the best price. Notwithstanding this, in the markets and products that MSB offer execution services in, the likelihood of settlement is not a major factor that is considered when determining how the best possible result will be achieved for a client Size of order When considering whether the best possible result has been achieved for the client, the size of the order is an important factor to take into account. Where the size of an order is at a standard market size or smaller, the bid / offer spread would generally be used as a factor in determining the best possible result Nature of order Liquidity of an instrument is important in being able to execute an order. In a highly liquid stock, there will generally be more competitive pricing offered, however in a less liquid stock, the price offered to a client might be outside the current bid / offer spread that is quoted on a regulated market. Where an order is executed on the order book, the trading desk has access to a large number of venues in order to source the best available result for the client. 2-13

14 2.4.8 Other factors The above factors are not exhaustive and other criteria might arise that is important to certain clients. These could take the form of explicit instructions on a trade-by-trade basis or be developed through an understanding between the client and MSB. 2.5 Execution venues Regulated Markets MSB is a member of both the Irish Stock Exchange and the London Stock Exchange. Further to this however, access is available to a range of Regulated Markets (and MTFs & Systematic Internalisers). MSB can execute orders directly with the central counterparty on the ISE and LSE order-book and also execute orders on an OTC basis and report them via either the ISE or LSE. We can also execute orders directly on the order-books of the other venues that we have access to through our business partners. Order-book trades will be determined by the pricing of the stock in each of the markets and levels of liquidity. They will be executed as principal, riskless principal or as agency. OTC trades will generally be executed and reported to the Irish Stock Exchange. Cost is also a factor in this decision process Multi-lateral Trading Facilities (MTFs) and Systematic Internalisers Multi-lateral Trading Facilities (MTFs) are facilities where shares can be traded outside a regulated market. MiFID puts in place transparency requirements for MTFs so that prices are generally available to the market and members can trade on an order-book facility. Systematic Internalisers (SIs) are firms that consistently internalise trades as a core part of their business. SI is a term that was created by MiFID and firms have to make the determination themselves as to whether they are an SI or not Other execution venues There may be occasions where MSB assesses that in order to achieve the best possible result in executing a client s order for a MiFID Financial Instrument, MSB must execute the order outside a Regulated Market or MTF. MSB is required to obtain the client s prior express consent before executing such an order outside of a Regulated Market or MTF Review of execution venues MSB will monitor the effectiveness of its order execution arrangements and assess whether the execution venues and business partners included in the Client Order Handling Arrangements provide for the best possible result for the client, or whether changes to the execution arrangements are required. MSB shall notify clients of any material changes to order execution arrangements or Order Execution Policy and such amendments to the order execution policy will be published on the MSB website. 2.6 Client Order Handling Policy In order to ensure the Firm seeks to achieve the best possible result for clients the following requirement has been put in place to the process of handling clients orders: 2-14

15 MSB records and allocates or receives and transmits client orders accurately and with the objective of achieving Best Execution; and Comparable client orders are carried out sequentially unless the characteristics of the order and prevailing market conditions make this impracticable or the client requires otherwise. Orders may be aggregated and executed in one or several tranches. This occurs only where there is a chance that several orders may be settled at a more favourable price. Aggregation may in some instances work to the disadvantage of a particular order: when executed, such orders will, to the fullest extent possible, be allocated to clients on the trade date at the calculated average price. Subject to any specific instructions that may be given by the client, when executing orders on the clients behalf, we will take all sufficient steps to obtain the best possible result taking into account relevant execution factors. The relative importance of the execution factors is determined using commercial judgement and experience in light of the market information available and taking into account execution factors at the time of trading. Specific instructions provided by the client to MSB in relation to the execution of a particular order may prevent MSB from taking steps set out in our Best Execution Policy and therefore obtaining Best Execution Receipt of orders Orders may be received by one of the following methods: ; Recorded phone line; and Meetings with clients when physically signed off by the client. In the case of orders received by , the client should not consider the order accepted until acknowledgement of same has been received. All client orders received by phone are maintained for period of five years. Every phone call which includes any relevant update(s) must be logged on the firm s Front Office (FO) system as a Contact & Diary Log entry. Any supporting documentation or follow up in a hard copy form e.g. investment proposal letter, must be scanned to client s file as soon as practicable. Any other instructions e.g. a written letter posted to the office address must be verified with a client contact by phone or . If a call is received on a mobile phone, it must be transferred to the recorded line. Any order provided to MSB by the client may be transmitted for execution to an external entity (thirdparty broker). This process is applied in client s best interests where such action is more likely to achieve the best possible result. The Trading Team endeavours to execute all orders with a view to obtaining the best possible result for the client. The main types of client orders received are: Market/Best this type of order is executed immediately subject to liquidity; Limit Order this type of order sets the minimum or maximum price at which to buy or sell; 2-15

16 With Volume - the type of order is executed in line with volume, generally a percentage of traded volume; Volume Weighted Average Price (VWAP) this type of order is over a specified time interval. A trade is scheduled according to the historical, predicted volume and volatility profile of the individual stock. Time Weighted Average Price (TWAP) this executes an order in similar sized slices over a specified time interval; and Market on Close (MOC) - a market order that will be executed in the closing auction. Where an order is viewed as being difficult to execute with regard to affecting current price, the Trading Team liaises with the Private Client Desk/Institutional Desk/client in order to confer on the best course of action. Orders received are either executed by MSB or transmitted to appropriate third parties for execution on the same business day of receipt provided that the order is received prior to a specified cut-off time. If the order is received after the cut-off time, the order will be executed or transmitted for execution on the next business day Monitoring of Best Execution The full list of the firm s transactions is uploaded to TranzacTzar database on a daily basis. The system then highlights any transactions that may have been carried out outside of the required Best Execution parameters. These alerts must then be reviewed by the Execution Desk and/or Compliance Team. Rationale for discounting is noted and evidence retained within the TranzacTzar platform. This provides the firm with an audit trail facility storing five years of full order and execution activity including relevant market data across all liquidity pools. This allows the firm to capture execution details and analyse trades against the execution policy/standards. The service includes a secure reporting module, which integrates transaction history and market data for execution quality monitoring, order handling reports, periodic execution policy analysis and compliance reporting. The platform also enables the firm to examine the quality of trades executed and assess them according to venue, stock, dealer etc. The platform also provides automated exception reports where eflow compares a trade Best Bid/Offer and the set variance thresholds and generates a report indicating a deficiency in execution. MSB s order data is uploaded from the firm s Order Management System (OMS) into the eflow repository at the end of the trading day and is then held for 5 years. Summary depth tick prices are held for all transactions. eflow is a single multi-firm repository which stores the audit trail from the OMS and relevant third-party systems. On a daily basis, eflow runs an automated report checking the on-market execution fills to identify any trades with a 100bps variance from the VSOT (VWAP Since Order Time). This report is reviewed by the Execution Desk to ensure that poor execution trends are identified in a timely manner in order to ensure that future trades are executed through a more favourable venue or counterparty. TransacTzar is a business-focused technology platform that enables total trade transparency and surveillance with minimal impact on the Trading Team personnel. TransacTzar: Records all trade life cycle events and actions including related news, market data and systemic events; Benchmarks all orders against predefined best execution parameters; Tests all orders to identify possible potential breaches of best execution requirements; 2-16

17 Manages exceptions and aberrations through its internal case management system; Provides profiling, reporting and analysis; Interfaces with any system, whether in-house or vendor, legacy or contemporary; and Provides a toolkit (with embedded Change Management) to enable the business to optionally configure their solution internally. On a daily basis, MSB provides eflow (TransacTzar) all of its execution data. eflow integrates this data in their market tick data and extracts the VSOT/VWAP values. MSB Compliance monitors and reviews its Best Execution Policy and Execution and Client Handling Arrangements on an ongoing basis as part of its second line responsibilities. The results of this monitoring are then fed back to the Trading Desk and to the Audit and Compliance Committee. The Best Execution Assessment is conducted on an ongoing basis and includes: Comparison of the execution quality from the execution venues and counterparties with similar transactions: this assesses whether the Firm s arrangements on execution of client orders are working; as well as whether the counterparties deliver the best possible result for the client. Comparison of the execution quality MSB obtains with similar transactions executed at the other execution venues/counterparties in the Firm s execution policy: this assesses whether the firm is choosing the best execution venue and counterparties. The firm conducts a series of tests to ensure that the above criteria are met on an ongoing basis and remain relevant/appropriate to the business of the firm. These include: (a) Daily testing (Undertaken by the Execution Team): Determines if there were any outlier transactions among trades from the previous day; this test relates specifically to price; (b) Monthly testing (Undertaken by the Compliance Team): Conducted on a sample basis for broader execution criteria including order instruction, venue, cost, speed of execution and nature of transaction; (c) Semi-annual review (Undertaken by the Execution Team): Assesses counterparties and business partners used in the Firm s transaction execution process; (d) Annual review: (Undertaken by both the Execution Team and Compliance Team) Review of the Best Execution Policy, Execution and Client Order Handling Arrangements and Best Execution Procedures to ensure that any material issues identified during the testing year have been addressed and implemented; and (e) Ad-hoc review (Undertaken by the Compliance Team): Review of the Best Execution Policy, Execution and Client Order Handling Arrangements and Best Execution Procedures and monitoring programme where a significant issue* arises and a material change** is needed to those documents. * significant issue issue related to an internal sanction or disciplinary procedure taken against a dealer/portfolio manager as a result of the findings of the Best Execution monitoring programme or a client complaint. ** material change - a change where an amendment is required to either the Firm s procedures (followed by re-training of the relevant staff) or an amendment to the procedures concerning the technological process around best execution. 2-17

18 2.6.3 Equities Where the Discretionary Portfolio Management Team are executing equity instructions they will execute the order flow to the counterparty which provides the best possible result. Price will ordinarily merit a high priority to achieve the best possible result. However, in certain circumstances, for certain clients, orders, or markets, the trader may determine that other execution factors, for example speed, are more important. MSB looks at the merits of each order when considering how to obtain the best possible result for its clients Fixed Income For both retail and professional clients, the timing of orders received by the firm will have to be recorded and monitored. Upon receipt of a time stamped order, it will be passed to the Fixed Income desk. In all instances, the time of order receipt and time of order execution will be noted on the ticket. For retail and professional client Fixed Income trades, it is the general policy to poll up to five market counterparties using the Tradeweb/ Bloomberg platform and select the best price bid or offered. MSB looks at the merits of each order when considering how to obtain the best possible result for its clients. Price will ordinarily merit a high priority in obtaining the best possible result. However, in certain circumstances, for certain clients, orders, or markets, MSB may determine that other execution factors, for example speed, are more important Order Allocation Policy This Order Allocation Policy applies when two or more client orders are aggregated together. Orders may be aggregated and executed in one or several tranches. This is only in case when there is a chance that several orders may be settled at a more favourable price. Aggregation may in some cases work to the disadvantage of a particular order. When executed, such orders will be allocated to clients on the trade date at the calculated average price where possible. If aggregated orders can be only partially executed, the executed portion will be allocated to the participants in proportion to the size and conditions of their orders. If this allocation would result in uneconomic or unsuitable holdings for the clients concerned, we may allocate other than on a pro rata basis Client Limit Orders If a client places a limit order with MSB for shares admitted to trading on a regulated market and it is not immediately executed under prevailing market conditions, unless the client expressly instructs MSB, measures will be taken to facilitate the earliest possible execution of the order by making the order public without delay, in a manner easily accessible to other market participants. MSB will be deemed to comply with this if it transmits the client limit order to a regulated market or an MTF. In certain circumstances MSB will not have to comply with the obligation under Regulations to make public a limit order, where that order is large in scale compared with normal market size. This is determined under Table 2 of Annex II of Commission Regulation (EC) No. 1287/2006. The Central Bank of Ireland, on a case by case basis, may direct MSB that this exemption is not available. 2-18

19 2.7 Client request for information Under MiFID II, a client has the right to seek information with respect to a trade and that it has been executed in line with the Best Execution Policy. If the request is not resolved verbally by the Execution Desk, the request should be directed to the Compliance Department. Irrespective of the above, the Compliance team should be made aware of all requests. The Execution Desk will co-ordinate the collation of all order information and instructions. The bid / offer spread in the relevant markets at the time of order receipt will be used as a starting point for examining current market conditions as well as liquidity of the market and any other market factors of relevance. All relevant information such as nature of the order, the instrument, the markets that the instrument is admitted to trading on, any instructions that are provided as well as market conditions will be taken into consideration in determining whether the best possible result was achieved on that order. As each order has different criteria and different market conditions the ability to 'prove' best execution will be on a case-by-case basis. MSB maintain an audit trail for each order as well as keeping phone records and Bloomberg messages for the minimum required period of five years. In the event of a client complaint, it will be directed to the Compliance Manager and the complaints process will be followed. 2-19

20 Appendix 1: The List of Counterparties & Business Partners Counterparty Address Alliance Bernstein 40 Berkeley Street, London W1J 8SB Baader Helvea 5 Royal Exchange Buildings, London EC3V 3NL Bluefin Trading Heron Tower 110, Bishopsgate, London EC2N 4AY BNP Paribas 10 Harewood Avenue, London NW1 6AA CMC Markets 133 Houndsditch, London, EC3A 7BX Commerzbank 30 Gresham Street, London EC2V 7PG CS AES 1 Cabot Square, Canary Wharf, London E14 4QJ Danske Bank 3 Harbourmaster Place, IFSC, Dublin 1 Flow Traders Jacob Bontiusplaats 9, Amsterdam 1018 LL The Netherlands Forte Securities 30 Great Pulteney Street, Golden House, London W1F 9NN HSBC 8 Canada Square, London E14 5HQ IG Markets Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA IMC Trading Strawinskylaan 377, 1077 XX Amsterdam, The Netherlands Kepler Chevreux 112 Avenue Kleber, Paris, France KGC 55 Basinghall Street, London EC2V 5DU Landesbank Baden-Württemberg 201 Bishopsgate, London EC2M 3UN Mid Atlantic Capital Group 1251 Waterfront Place, Pittsburgh, PA Royal Bank of Scotland 135 Bishopsgate, London EC2M 3UR Susquehanna Memorial Road, IFSC, Dublin 1 Unicredit Bank 120 London Wall, Moorhouse, London EC2Y 5ET Williams Trading 9-11 Grosvenor Gardens, London SW1W OBD 2-1

21 Appendix 2: A list of execution venues Instrument Venue Irish equities & Exchange-Traded Funds ( ETFs ): Irish Stock Exchange London Stock Exchange UK equities & ETFs London Stock Exchange Other European Equities Euronext Paris Euronext Brussels Euronext Lisbon Xetra Deutsche Borse BME Spanish Exchanges Borsa Italiana ASE Athens Exchange Helsinki Stock Exchange OSE Oslo Stock Exchange CSE Copenhagen Stock Exchange SSE Stockholm Stock Exchange Overseas equities & American Depositary Receipts ( ADRs ) See Appendix 1. Bonds and Fixed Income Securities Tradeweb Bloomberg 2-2