Best execution policy

Transcription

1 Best execution policy 1. Introduction The law of 13 July 2007 that transposes into Luxembourg law the European Markets in Financial Instruments Directive and which is enacted on 1 November (hereafter MiFID) reinforces the best practice rules applicable to financial intermediaries. The best execution obligation is one element of this regulation. This obligation requires the Bank to take all reasonable measures to obtain the best possible results for its customers when executing orders. Société Générale Bank & Trust Luxembourg (hereafter SGBT) intends to comply with this best execution obligation by formalising rules in the form of this policy. Best-execution obligations are applicable to all financial instruments listed in point 4 of the glossary and duplicated in the Luxembourg Financial Sector Law (FSL). Nevertheless, as these financial instruments differ substantially in terms of standardisation, liquidity and number of possible execution venues, SGBT s application of the best execution principle is adapted to each financial instrument and the type of transaction that the customer proposes to effect. SGBT takes into account all of the criteria described hereafter including, as well as the execution price of the order, the overall cost of the transaction, the speed of execution, the size, nature and special characteristics of the order as well as its likelihood of execution. The best execution principle applies to all retail and professional customers, but does not apply to those classed as eligible counterparties. For each individual transaction, this obligation is to be considered as an obligation of means and not of outcome. Nevertheless, the Bank may, at the customer s request, provide all necessary information showing that it has complied with its best execution obligation. Treatment of specific instructions Under the terms of the previously mentioned law, customers are advised that if they forward an order containing a specific instruction, such as a request for execution on a particular exchange, SGBT will not be able to apply the best execution policy described below. SGBT shall be deemed to have satisfied its best execution obligation to the extent that it executes an order, or a specific part of an order, according to the specific instructions of the customer. Special cases Customers are advised that SGBT may decide to execute orders concerning financial instruments outside the regulated markets or an MTF. SGBT will exercise this option in compliance with the best execution principles described below 2. Description of the best execution policy In order to satisfy its customers needs, SGBT offers a full range of services and executes orders involving a wide variety of financial instruments. As a result, SGBT may act as: an intermediary for the customer receiving and transmitting orders for execution by a third-party serviceprovider, a member of the Luxembourg Stock Exchange with respect to the securities listed on the said stock exchange for which it is the principal exchange, a direct counterparty in highly specific cases (forward currency transactions, swaps, and personalised financial instruments etc) SGBT as a receiver/transmitter of orders 1/5

2 Order execution terms may vary according to financial instruments and their specific characteristics, even when SGBT is acting simply as an intermediary. As part of its best execution obligations towards its customers, SGBT shall transmit customer orders swiftly and in order of arrival unless the nature of the order or market conditions make it impossible to do so or the interests of the customers require a different course of action. SGBT will act with due competence, care and diligence in selecting and appointing the exchange members/counterparties that will execute the transactions. In particular, it will assess the market expertise and reputation of the exchange member/counterparty in question, be it internal or external to the Société Générale group, as well as their capacity to ensure the best execution of transmitted orders within the meaning of this policy. SGBT has selected exchange members/counterparties that take all reasonable steps to obtain, when executing customer orders, the best possible result taking into account the following factors, in order of priority: Total cost total cost means the price of the financial instrument plus the costs related to execution, including commissions, execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order. SGBT s commissions are structured so as not to discriminate unfairly in the selection of potential exchange members/counterparties. Speed the greater the standardisation of the product and the more liquid the market, the faster the execution will be. The likelihood of execution and the size of the order for non-standard transactions, particularly those that are significantly larger than are normally traded on the relevant regulated market, SGBT may suggest that the customer seeks a price outside of the bid/ask price on the exchange in question. In this specific case, the customer order may not be executed as if it were in the order book of the said exchange. On some foreign exchanges, secure settlement may take priority in order to ensure the proper execution and settlement of the transaction. SGBT reserves the right, after informing customers, to cease transmitting or executing customer orders or have them executed on any market or execution venue or by any exchange member/counterparty presenting recurring problems with settlement and delivery. This order of priority may change under certain circumstances. SGBT may choose another order of priority from the above list according to market conditions, the type of order and in compliance with its obligation to obtain the best possible result for its customers. Indeed, total cost is not necessarily the most important factor. In some cases, the likelihood of execution is the key factor in the processing of the order, as in the case of a security that is listed on a regulated exchange but is mostly traded over the counter. Orders concerning the units of collective investment undertakings, the subscription, redemption or conversion of units that SGBT executes on behalf of its customers directly or indirectly with a clearing agency shall be deemed to satisfy best execution criteria. The main exchange members/counterparties used and the main exchanges on which the exchange members/counterparties operate are listed in an appendix available to customers on request and/or on the SGBT website. If an order cannot be executed by an exchange member/counterparty on the list due to the specific nature of the transaction or the security in question, SGBT may have recourse to the exchange member/counterparty of its choice to facilitate execution of the order SGBT acts as a member of the Luxembourg Stock Exchange As a member of the Luxembourg Stock Exchange and in instances where SGBT transmits an order from one of its customers to this exchange, SGBT undertakes to register the order in the order book, taking into account any particularities of the order (a limit order for example) to the extent that market conditions are compatible with the nature and size of the order. Because the customer s order is executed in the order book, the obtained result reflects the matching of sell and buy orders on the market at the time the transaction is transmitted and executed SGBT proprietary trading to execute customer orders In the context of transactions concluded with customers on certain financial instruments (forward currency transactions, swaps or personalised financial instruments for example), SGBT may act as the counterparty of the order received from its customer. 2/5

3 When executing orders, SGBT undertakes to take all reasonable steps to deliver the best possible result for the customer based on the following criteria: Price of the financial instrument SGBT undertakes to provide a fair price, taking into account precise market parameters and market conditions prevailing at the time the order is transmitted. To this end, SGBT has taken only the necessary means for permanent access to specialist centres dedicated to these transactions. Speed of execution. The likelihood of execution and the size of the order. The execution of transactions within this context is also based on the internal standards described in point 3 below General principles governing the financial instruments handled The Bank will satisfy its best execution policy by handling different financial instruments according to the following principles: Listed equities and similar instruments: The Bank s preferred execution venues for listed equities and similar instruments are the regulated markets or an MTF, based on the principle of the most liquid exchange. In the case of orders to sell equities, the execution venue shall, for reasons linked to the cost of execution, be determined mainly by the place in which the securities in question are deposited. Bonds: The Bank s preferred execution venues for bonds are the over-the-counter markets. However, the Bank reserves the right to execute bond orders on regulated markets or an MTF provided that does not constitute a disadvantage to the Customer. The execution of bond orders may depend on the liquidity of the market. Collective Investment Undertakings: The Bank s preferred execution venues for Collective Investment Undertakings are the issuers of such instruments or their respective distribution channels. The rapidity of execution of such orders is dependent on the calculation of the NAV as provided for in the prospectus. The Bank reserves the right to use the regulated markets or an MTF for any limit order concerning a Collective Investment Undertaking. ETF (Exchange traded funds): The execution of an order for a vehicle such as an ETF (exchange traded fund) or for similar instruments may be subject to market liquidity. Accordingly, the Bank can execute customer orders either in a regulated market or via an MTF platform, while applying the equity orders execution policy described above, or it can execute customer orders in over-the-counter markets, provided it does not put the customer at a disadvantage. Other financial instruments: The best execution principle has to be adapted to each financial instrument. Best execution requirements may be more complex to achieve for orders relating to structured products and non-listed financial instruments in general. 3. Additional structural measures SGBT has introduced structures and tools permitting the processing and follow-up of the settlement of executed orders on behalf of customers within the customary or regulatory time limits. To this end, SGBT has support functions (notably back offices and IT services) that are independent of the dealing room and that are subject to control by the internal audit and risk control departments and the processes and operating methods of which are periodically reviewed to ensure that customers benefit from the best possible quality of service. 4. Control and modification of the policy In principle, SGBT shall review its execution on an annual basis. SGBT will re-examine this execution policy in the event of a substantial change which affect SGBT s capacity to continue to obtain the best possible results in the execution of its customers orders on a consistent basis (e.g. the creation of a new market that quickly manages to capture a large portion of liquidity on financial instruments traded on behalf of customers or, conversely, a dramatic loss of liquidity on the market of these same financial instruments). SGBT will inform its customers of any substantial changes to its execution policy. 3/5

4 5. Consent of the customer Customers shall be informed about the present execution policy as well as any changes through communications sent by the Bank to the customer or another manner that the Bank shall deem most appropriate. In the absence of objections from the customer expressed to the Bank in writing within 30 calendar days following the delivery of the present policy to the customer, or if the customer transmits an order after receiving it, SGBT will consider that the customer s consent to the policy has been given. Furthermore, the customer expressly authorises SGBT to execute orders in financial instruments that are admitted to trading on a regulated market or MTF outside that regulated market or MTF. 6. Glossary 1. "Order book": identifies buy and sell orders placed on the market for a given market in order to match supply and demand. The security s equilibrium price is then calculated to maximise the number of transactions. 2. "Third-party order execution": entering buy or sell agreements on one or several financial instruments on behalf of customers. 3. "Systematic internalisation": a credit establishment or investment firm that, on an organised, frequent and systematic basis, deals in proprietary trading by executing customers orders outside a regulated market or an MTF. 4. "Financial instruments" : transferable securities, money-market instruments, units in collective investment undertakings, securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures that may be settled physically or in cash, commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), commodities that can be physically settled provided that they are traded on a regulated market and/or an MTF, commodities that can be physically settled not otherwise mentioned in point 6 of Appendix II Section B of the French law of 5 April 1993, as amended, concerning the financial sector and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls, derivatives used to transfer credit risk, financial contracts for differences, climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in Appendix II Section B of the law of 5 April 1993, as amended, concerning the financial sector, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls. 5. "Money-market instruments": those categories of instruments that are normally dealt in on the money market, such as treasury bills, certificates of deposit and commercial papers (excluding instruments of payment). 6. "ETF Exchange Traded Fund": an ETF (or Tracker) is a listed mutual fund that is linked to a particular index and designed to replicate the performance of a stock index, which could be an equity, bond or commodity index. 7. "Execution venue": a regulated market, an MTF, a systematic internaliser, or a market maker or other liquidity provider or an entity that performs a similar function in a country situated outside the European Union to the functions performed by any of the foregoing. 4/5

5 8. "Regulated market": a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together in the system and in accordance with its non-discretionary rules of multiple third-party buying interests in financial instruments in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules or systems, and which is authorised, subject to regulation by independent authorities and functions regularly. 9. "Exploitation of a multilateral trading facility (MTF)": the management of a new type of market instituted by the MiFID. MTFs, which are created by one or several financial intermediaries, have a similar aim to the so-called regulated markets, namely to promote the buying and selling of financial instruments within the facility in accordance with non-discretionary rules. 10. "Over-the-counter transactions": two-way dealing in financial instruments outside the regulated market or a multilateral trading facility. 11. "Limit order": an order to buy or sell a financial instrument at its specified price limit or better and for a specified size. 12. "Proprietary trading": in the case of a bank, this service consists in trading against proprietary capital to conclude transactions in financial instruments, including derivatives, temporary security sales and the sale of structured products to customers. 13. "Receipt and transmission of orders": in the case of an investment service provider this involves receiving and transmitting orders in respect of financial instruments to another service provider on behalf of customers. 14. "Market maker": a person who continuously holds out on the financial markets as a proprietary trader by buying and selling financial instruments against his own capital at prices defined by him. 15. "Marketable securities": classes of securities that are negotiable on the capital market, (with the exception of instruments of payment), such as: shares in companies and other share equivalents in companies, partnerships or other entities, and share certificates, bonds or other forms of securitised debt, including securities certificates, any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures. 5/5 01/2013