& SIB (Cyprus) Limited, London Branch 85 Fleet Street, 4th Floor, London EC4Y 1AE, United Kingdom Phone +44 0 207 583 3257 Fax +44 0 207 822 0779 Order Execution Policy October 2017
SBERBANK CIB (UK) LIMITED 4th floor, 85 Fleet Street London, EC4Y 1AE, UK Tel: +44 (0) 207 583 3257 Contents 1. Introduction... 3 1.1. The Purpose of this document... 3 1.2. Scope of the policy... 3 1.2.1. Client type... 3 1.2.2. Financial instrument-type... 4 1.2.3. Nature of the transaction... 4 2. Execution venue decision... 4 2.1. Execution options... 5 2.1.1. Trading venues... 6 2.1.2. Through a third-party broker... 7 2.1.3. Bilaterally with counterparty or Internalisation... 8 2.2. Execution Factors... 8 2.3. Execution Criteria... 9 2.3.1. Where specific instructions have been provided by the client... 9 2.3.2. Where no specific instructions have been provided by the client... 9 3. Order allocation and aggregation... 10 4. Demonstrating Best Execution... 11 5. Monitoring... 12 6. Disclaimer... 12 7. Appendix 1: List of BE relevant Financial Instruments... 13
1. Introduction 1.1. The Purpose of this document For the purpose of this policy, the terms CIB UK and the Company is used for Sberbank CIB (UK) Limited. This document sets out how CIB UK meets its best execution obligations bearing in mind the nature of its business and of its clients in relation to the execution, allocation and aggregation of orders or transactions as well as management of client orders, or arranging for an approved third party to do so on the Company s behalf. In particular, this Policy sets out the key aspects applicable to the execution process, namely: (i) (ii) Execution factors and criteria to achieve Best Execution; The execution process followed by the Company; (iii) The order management process; (iv) Disclosures and client consents required by the Company; and (v) Summary of the procedures and process used to analyse the quality of execution obtained and how the Company monitors and verifies that the best possible results were obtained for clients. 1.2. Scope of the policy Given the strategic focus and the current business of CIB UK, Best Execution (BE) obligation, in full, does only apply for non-rfq trades for which specific client instructions are not provided. In case the strategic focus of the Company is changed, this policy will need to be reviewed. Requirements around prompt order handling are applicable to both agency and principal based transactions. Also such requirements are not limited to any particular client type. Thus for this set or requirements the scope is wider than for the BE obligation. 1.2.1. Client type In scope of this policy are Professional clients in any of the following circumstances - where CIB UK accepts an order, or - for RFQs where the Professional client legitimately relies on the Company to protect their interests in relation to pricing or other important element 1 of the transaction, and 1 Legitimately reliant clients are beyond risk appetite of the Company, therefore to be rejected during the onboarding process
- where CIB UK has expressly agreed to provide BE. The Company is not obliged to provide best execution to clients that are classified as Eligible Counterparties ( ECP ) in accordance with Directive 2014/65/EU Article 30 and who have consented to the Company s ECP categorization letter. 1.2.2. Financial instrument-type The Company s obligations under this policy only relate to relevant MiFID II activity that it conducts in Financial Instruments listed in Annex I either in isolation or as part of a structured transaction. As stand-alone Spot FX is not defined as a financial instrument, Best Execution obligation does not apply. The same is true for Loans and Repos, Commodities and certain types of Commodity derivatives that are physically settled and not traded on a regular market beyond BE obligations. 1.2.3. Nature of the transaction BE obligation applies to Professional clients that engage with CIB UK in one of the following two ways: i. CIB UK explicitly acts on clients behalf ( On clients behalf) ii. CIB UK does not explicitly act on clients behalf, but client is legitimately reliant on CIB UK ( legitimate reliance ) Scope of the order handling requirements, however is not limited to any client type as mentioned above. On clients behalf CIB UK will be executing orders on a client s behalf when it: executes an order by dealing as agent; executes an order by dealing as riskless principal on behalf of a client; and works an order on the client s behalf (i.e. executing a client order against the firm's own proprietary position, where CIB UK is making decisions as to how the order is executed). CIB UK does not execute orders on a client s behalf where CIB UK publishes a quote or provides RFQservice and the client transacts with CIB UK on the basis of that quote unless the client is legitimately reliant on CIB UK to execute its order in their best interest. 2. Execution venue decision
This chapter sets out the decision logic used when CIB UK executes an order on client s behalf and specifies how the following components are considered in this process: (i) Execution options define where an order is executed as well as the process of selecting the appropriate execution option (ii) Execution factors define the aspects to be considered when executing an order (iii) Execution criteria inform the relative importance of the Execution Factors (iv) Execution compensation does not infringe the requirements on conflicts of interest or inducements when executing an order (for further information on how CIB UK handles conflicts of interests, please refer to CIB UK s Conflicts of Interest policy) Order amendments In case the Company has received more than one instruction for a specific order by the client, it is the last instruction received from the client that is conform to CIB UK s general order execution policy that shall be relevant to Best Execution. Should this amendment include any specific client instructions Section 2.3.1 applies. Amended instructions do not apply to the part of the order that has been executed already. 2.1. Execution options The Company has access to a variety of different execution venues either directly or through third parties. This way, the Company is able to handle on a consistent basis its clients orders on financial instruments traded in domestic and international markets. Subject to any specific instructions that may be given by the client in order to select an Execution Venue for an order CIB UK has the following venue-types for executing clients orders: Trading venues (i.e. Regulated Markets 2, Multilateral Trading Facilities (MTF) 3, Organized Trading Facilities (OTF) 4, Third-country equivalent venues 5 ) Third-party brokers 2 EU exchanges 3 Multilateral system2, operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments in the system and in accordance with nondiscretionary rules in a way that results in a contract 4 Multilateral system which is not a regulated market or an MTF and in which multiple third-party buying and selling interests in bonds, structured finance products, emission allowances or derivatives are able to interact in the system in a way that results in a contract 5 Venues in countries outside EU, deemed as equivalent
Bilaterally with counterparty (i.e. with Systematic internalisers (SI) 6 or with non- Systematic internalisers (non-si) Internalise (crossing of two client-orders, executing against CIB UK s own inventory or acting as a riskless principal ) 2.1.1. Trading venues CIB UK will consider the following venues for executing client orders 7 : London Stock Exchange (`LSE`) Moscow Exchange (`MOEX`) Borsa Istanbul ( BIST ) MTFs, OTFs MOEX cannot be accessed directly by CIB UK, but is accessed through the Group s Russian entity, ZAO SIB CIB. In the same logic, BIST cannot be accessed directly by CIB UK, but is accessed through DenizBank Ş.A. In both cases, this is a frictionless process with no impact on the Execution factors. The Best Execution obligation and full discretion remain with the Company. Therefore if an instrument is traded on one of the exchanges which can be accessed by the Company (see above) then the execution will take place there. In cases where there is a choice between the two exchanges, the decision is made based on specific client instructions. Should an order leave any discretion on which one of the two exchanges the order should be executed, the Company will solicit these instructions from the client. Thus the Company will follow the following logic after obtaining required instructions: If the client has instructed CIB UK to trade on a venue to which CIB UK has access the execution will take place there If the client has instructed CIB UK to trade on a venue for which CIB UK does not have a licence the execution will be conducted via a broker Also, CIB UK will appoint a broker in case where an instrument is traded only on venues to which CIB UK not have access, sourcing required instructions from the client. More detailed description of use 6 An investment firm which, on an organized, frequent systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system 7 Venue selection subject to Trading Obligation (MiFIR, Art. 23(1))
of brokers described in the next section. An important method used by CIB UK to provide most favourable results to its clients while executing their orders is applying trading algorithms. As part of the overall governance and decision making framework, CIB UK has developed and continues to monitor its trading systems and trading algorithms. 2.1.2. Through a third-party broker If the security is available on venues other than listed above, the Company may transmit an order, subject to any specific instructions that may be given by the client, to an approved third-party broker for execution. When transmitting an order to a third-party broker, the Company relies on the respective broker to deliver on the BE obligation. In doing so, the Company will act at all times in the best interest of the client and comply with the requirements outlined in this policy. Best Execution is ensured through a formalised and periodic (at least annual) review of third-party brokers. Through these reviews CIB UK confirms that third-party brokers considered: have the ability to execute orders in line with Best Execution requirements and apply those abilities to orders routed from CIB UK s EU entities. Main third-party brokers currently used by the Company are: 1) UBS Securities LLC 2) KCG Holdings, Inc. These brokers considered to be interchangeable. Brokers not specified in this policy are only used on an exceptional basis when: Client instructions prevent from transmitting to pre-selected brokers above Specified above brokers have no licence to trade on specified venue / venue where instrument is traded Specified above brokers have no licence to trade on venue where CIB UK can get better results for the client through another broker. When transmitting an order to a third country (not equivalent EEA) broker, to protect the best interests of its client CIB UK informs the broker on BE obligation and monitor its execution through periodic (at least annual) review.
2.1.3. Bilaterally with counterparty or Internalisation Where CIB UK has obtained the client s prior express consent, it might also consider executing orders outside of exchanges and third-party brokers by internalisation or bilaterally with a counterparty (subject to trading obligation). Before CIB UK internalises (crossing of two client-orders or executing against CIB UK s own inventory) or executes order bilaterally with a counterparty parts of or the whole of a client s order, it must consider available alternatives outlined in this policy, namely trading venues or third-party brokers, to obtain the best possible result for the order (as internalisation or bilateral execution is possible only if equally good or better result may be obtained). Generally, the Company chooses the venue that provides the best combination in terms of total consideration of price and costs available when considering internalising 8. Specific situations that can alter the relative importance given to the Execution Factors are outlined in Section 2.2. Internalisation also includes transactions, where CIB UK acts as a riskless principal. In these transactions, the Company directly approaches one of the counterparties and, upon agreement to the quote by both counterparties, executes the client s order in two separate transactions at the same time and on the same terms (price, instrument, time). 2.2. Execution Factors In the absence of specific client instructions, when managing client orders through to execution or upon facilitating the receipt and transmission of an order, the Company will take all sufficient steps to achieve the best possible result for clients in a comprehensive and consistent way. The Company will take into consideration, inter alia, a combination of the following Execution Factors: Price: which will vary according to factors such as market liquidity, market rules regarding quotations, bids and offers, etc.; Costs: including transaction costs, fees, charges directly relevant to the execution of a client s order that the client will pay to any third parties and venue costs; Speed: the speed with which the Company is likely to be able to execute a client s order on the venues available to the Company, meaning the time between receipt of the order by the venue and the time it is allocated; Nature of the order (e.g. limit vs. market order); 8 When considering internalization CIB UK, for purpose of ensuring that a better or at least equally good result may be obtained for the client, will use as a benchmark another best in terms of specified parameters venue option
Size: the impact large orders may have on the market prices; Likelihood of execution and settlement: including the relative liquidity of the venues available for execution; and Any other relevant peripheral consideration relevant to the execution of the order. 2.3. Execution Criteria 2.3.1. Where specific instructions have been provided by the client When executing an order that includes a specific client instructions, the Company will execute the order in line with those instructions and will treat its best execution obligations as satisfied in respect of the part (or aspect) of the order to which those instructions relate. The remaining part (or aspect) of the order will be executed in line with this Policy. Clients should be aware that, by providing the Company with specific order instructions this may encumber the ability of the Company to obtain the best overall result. CIB UK will not solicit specific instructions (or expressly or implicitly suggest the content of such instructions) if the Company considers that in doing so such conduct might prevent it from obtaining the best possible result for the client. However, this should not prevent the Company inviting a client to choose between two or more specified trading venues, provided that those venues are consistent with this Policy. The Company will abstain from providing Best Execution when this provision would conflict with superseding regulation. 2.3.2. Where no specific instructions have been provided by the client When executing orders on behalf of clients, the Company shall ensure for the prompt, fair and expeditious execution of client orders, relative to other client orders or the trading interests of the Company. The Company will consider the relative importance of the Execution factors taking into account the following characteristics: Client (Professional or Retail nature); Order (size and type); Execution venues and prevailing market conditions
Financial instruments The characteristics of the client and financial instruments do not alter the relative importance of Execution factors within CIB UK s execution decision process, because it s BE-relevant business is limited to Professional clients and Cash Equities only. The characteristics of the execution venues and prevailing market conditions are considered in the periodic reviews to ensure compliance of the execution options with outlined requirements in this policy. The characteristics of the order affect the relative importance of the Execution factors on a transaction-level. For ordinary market orders, total consideration of price and costs will merit the highest relative importance in obtaining the best possible result. However, in accordance with the Execution Criteria, CIB UK may appropriately determine that other Execution Factors are more important than price and costs in obtaining the best possible execution result. The following scenarios outline where an alternative prioritisation is appropriate: Where price volatility results in timeliness of execution being a priority; Where immediately available liquidity is insufficient to execute an order in full, rendering likelihood of execution a priority; Where specific instructions are received to work the order over time or execute in line with time- or volume-dependent benchmark; and Other cases where it is determined that obtaining the best immediately available price may not be the best possible result for the client. 3. Order allocation and aggregation CIB UK Client orders will be dealt with on a first-in first-out basis and may be combined with own CIB UK orders, or with orders of other clients. However, when doing so CIB UK will follow the principles described below. General allocation and aggregation: Orders will be combined in a manner where it will be unlikely that this aggregation and of transactions will work overall to client disadvantage; It is disclosed to each client whose order is to be aggregated that the effect of aggregation may work to its disadvantage in relation to a particular order 9 ; 9 Any aggregation of client orders may result in obtaining on some occasions a more favorable price and on others a less favorable price than if client order had been executed separately;
In case of aggregation of orders, CIB UK will prevent allocation in a way that is detrimental to the client in the case of transactions for own account which are executed in combination with client orders; Reallocation of transactions will be considered where a client has been unfairly detrimented in the circumstances or where unfair precedence has been given to the CIB UK s own trading interests. There will be no reallocation of transactions for own account executed in combination with client orders, if such reallocation is detrimental to the client. Treatment of partial execution of aggregated order: In the case of aggregation of client orders, in the case of partial execution, the allocation will be done in accordance with the time of receipt of the client order; In case of aggregation of order with a transaction for own account and when the aggregated order is partially executed, related trades will be allocated to the client in priority to the CIB UK 10 and in accordance with a previous point. Execution of order in several transactions and treatment of large orders: Client order may be executed as a series of transactions at different times and thus the average price to such transactions will be applied; Where necessary, due to market conditions or where it is advantageous to the client, large orders may be executed over more than one day. CIB UK may allow for the delayed allocation of the order in the following situations: to avoid uneconomic allocations, mitigate high settlement costs or to optimize average pricing for the client. 4. Demonstrating Best Execution The Company will summarise and make public on an annual basis the top five execution venues in terms of trading volumes where it executed client orders in the preceding year and information on the quality of execution obtained. The Company also endeavours to provide best execution in relation to all relevant MiFID II business activity. However, where the client believes that it has reasonable grounds to assert that best execution was not obtained, the client can make a written request, for the Company to provide the following: An analysis of the procedures used to select that particular execution venue. Data reconstituting the trade information available to the Company at the time. 10 If CIB UK is able to demonstrate on reasonable grounds that without the combination it would not have been able to carry out the order on such advantageous terms, or at all, it may allocate the transaction for own account proportionally, in accordance with the provisions of this Policy;
5. Monitoring The Company monitors the effectiveness of their order execution arrangements for compliance with its order execution policy. Monitoring is conducted on: 1. Transaction-level and 2. Thorough the periodic review of execution venues 6. Disclaimer This document does not relate to financial instruments specifically excluded from the scope of MiFID II business activity or jurisdictions outside of the EEA where business is not undertaken on behalf of Sberbank Group. This document does not constitute legal advice and clients, irrespective of categorization, are advised to seek legal opinion where appropriate. We are not acting as the client s financial adviser or in a fiduciary capacity in respect of any transaction with the client unless otherwise expressly agreed by us in writing. Before entering into any transaction the client should take steps to ensure that he/she understands the transaction and have made an independent assessment of the appropriateness of the transaction in the light of the client s own objectives and circumstances, including the possible risks and benefits of entering into such transaction. The client should also consider seeking advice from his/her own advisers in making this assessment.
7. Appendix 1: List of BE relevant Financial Instruments 1. Transferable securities 2. Money-market instruments 3. Units in collective investment undertakings 4. 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 or financial measures which may be settled physically or in cash 5. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to 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) 6. Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a Regulated Market and/or an MTF 7. Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled that are not otherwise mentioned in paragraph 6 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 8. Derivative instruments for the transfer of credit risk 9. Financial contracts for differences 10. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to 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 this paragraph, 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 11. Emission allowances consisting of any units recognised for compliance with the requirements of Directive 2003/87/EC (Emissions Trading Scheme).