GENERALI Investments Europe S.p.A. Società di gestione del risparmio Internal Execution Policy 1
TABLE OF CONTENTS 1 INTRODUCTION... 3 1.1 PREMISES... 3 1.2 NEW REGULATORY FRAMEWORK... 3 2 SCOPE OF APPLICATION OF THE EXECUTION POLICY... 5 2.1 SCOPE... 5 3 ROLES AND RESPONSIBILITIES... 6 4 BEST EXECUTION STRATEGY... 7 4.1 GENERAL PRINCIPLES... 7 4.2 EXECUTION VENUES... 7 4.3 BEST EXECUTION FACTORS... 8 4.3.1 Price... 8 4.3.2 Market impact... 8 4.3.3 Liquidity and size... 8 4.3.4 Costs... 8 4.3.5 Execution speed... 9 4.3.6 Likelihood of order execution and settlement... 9 The likelihood that an order will be executed at the trading venue depends to a large extent on the liquidity of the financial instrument and the size of the trading venue.... 9 4.4 SELECTION OF BROKERS... 9 5 TRANSMISSION AND EXECUTION OF ORDERS... 11 5.1 GENERAL PROVISIONS... 11 5.2 EQUITY INSTRUMENTS... 11 5.3 MONETARY OR BOND INSTRUMENTS... 12 5.5. LISTED DERIVATIVES... 13 5.6 OTC DERIVATIVES... 13 5.7 PARTS OF COLLECTIVE INVESTMENT SCHEMES... 13 6 MONITORING OF THE EXECUTION POLICY... 14 7 TERMS OF REVISION OF THE EXECUTION POLICY... 15 Annex A - List of Financial Instruments Annex B - List of Brokers 2
1 INTRODUCTION 1.1 Premises This document defines and formalizes the terms and the criteria adopted by GENERALI Investments Europe S.p.A. Società di gestione del risparmio (hereinafter also the Company or Generali SGR ) for the execution and transmission of orders of financial instruments with regard to the business relating to the individual portfolio management and the management of collective investment schemes such as mutual funds and SICAV sub-funds. 1.2 New regulatory framework In the new framework introduced by the Directive 2004/39/CE (the MiFID Directive ) the elimination of the faculty for the Member States to impose the obligation of trading on the financial markets (set out in the previous Directive 93/22/EEC) has given a new and full relevance to the intermediary s duty to obtain the best possible result for clients (namely the best execution for client orders). In this context, best execution promotes competition between the various trading systems and, at the same time, protects investors by giving duly licensed entities the freedom to choose the execution venues ( execution venues ), in accordance with specific procedures designed to optimise the result. The framework in question thus derives from the European Union legislator s will to accommodate the new asset of the financial markets and at the same time to guarantee adequate protection for investors, when receiving the following services: i) execution of orders on behalf of clients (article 21 of the MiFID Directive), ii) portfolio management as well as reception and transmission of orders (article 45 of Directive 2006/73/CE, implementing the MiFID Directive). In particular, the MiFID Directive requires intermediaries to comply with the below principles when they provide the services in question: i) With reference to the execution orders on behalf of customers, the framework requires intermediaries to: - take all reasonable steps to obtain the best possible result for their customers, taking into account several factors (price, costs, speed and likelihood of execution and settlement) and their relative importance in consideration for certain criteria; - pre-define, in a special document, their order execution policy ( execution policy ), specifying the execution venues the intermediary intends to use for each financial instrument; - provide appropriate information to the customer and obtain the customer s prior consent to the policy and to over-the-counter (OTC) transactions. 3
ii) With reference to the portfolio management service (as well as reception and transmission of orders), the framework is less detailed in consideration of the minor issues presented by this service where it is provided through the mere forwarding of orders to other entities (hereinafter also referred to as brokers ). Nonetheless, where the management service is provided by executing decisions to trade, the framework for the execution service described under point (i) above is applied. At national level, the Consob Regulation of Intermediaries ( RI ) implements the rules imposed by the above mentioned directives. In line with the EU reference legal texts, article 48 of the RI governs the matter for portfolio managers who transmit orders to other brokers (by the so-called indirect access to the execution venues). In addition, article 48 of the RI sets out that the regulations relating to the execution of orders on behalf of customers (articles 45, 46 and 47 of the RI) shall also apply to portfolio managers who make decisions to deal and who therefore use the so called direct access. In this context Consob has deemed it suitable to guarantee the same operating conditions for individual and collective management and, as a consequence, has laid down the rules for best execution, adapting them to the specific characteristics of the service (articles 68, 69 and 70 of the RI). This policy has been approved by the Board of Directors of Generali SGR. 4
2 SCOPE OF APPLICATION OF THE EXECUTION POLICY 2.1 Scope This Execution Policy shall apply to activities carried out by Generali SGR with regard to the execution/transmission of trading orders for financial instruments traded within the scope of the management services it provides and with particular reference to: portfolio management ( Portfolio Management ), mutual funds and SICAV ( Collective Investment Schemes ). 5
3 ROLES AND RESPONSIBILITIES The Board of Directors (BoD) of Generali SGR is responsible for the definition, approval and revision of strategic direction and guidelines for transactions relating to the execution/transmission of trading orders for financial instruments as part of the individual Portfolio Management and Collective Investment Schemes. With regard to such transactions, the Board of Directors of Generali SGR defines: delegated powers and responsibilities; roles, processes and procedures; selection criteria for the trading venues it accesses (whether directly or through intermediaries). The BoD of Generali SGR monitors application of this Execution Policy by the relevant Company s representatives and organizational units involved. For these purposes, the BoD of Generali SGR is supported by the Compliance Function and by the units it has set up within each of the entities to which is applicable this Execution Policy. The BoD of Generali SGR is supported, within the scope of the activities described above, by the Investments Department. In particular, the Investments Department supports the BoD in the activities connected to: updating and review of the methods of execution/transmission of trading orders, selection of any external intermediaries to be used as brokers, periodic assessment of the coherence of the methods of execution defined with the best execution strategy set out by this Execution Policy. The Front Office of Generali SGR is responsible for the execution of trading orders or their transmission to external intermediaries. 6
4 BEST EXECUTION STRATEGY 4.1 General principles In providing its management services, Generali SGR takes all reasonable steps to obtain the best possible result for its customers. This does not mean that the best possible result from execution is achieved for each individual trading order. Generali SGR defines its Execution Policy with impartiality. To this end, Generali SGR takes the following factors into consideration: price, market impact, liquidity and size, costs, speed of execution, likelihood of execution and settlement, as described below. Generali SGR attributes a relative importance to these factors, taking the following criteria into consideration: - the objectives, management style, investment policy and specific risks of the managed Collective Investment Schemes within the scope of the collective portfolio management; the customer s characteristics within the scope of the individual portfolio management, including its classification as retail or professional customer; - the characteristics of the order; - the characteristics of the financial instruments to which the order relates to and, in case of management of Collective Investment Schemes, the liquidity characteristics of the financial instruments; - the characteristics of the execution venues to which such order may be transmitted. Within the scope of the individual Portfolio Management, for retail customers Generali SGR establishes the relative importance of best execution factors in terms of total consideration, comprising the price of the financial instrument and the relative execution costs. Costs include the expenses incurred by the customer and which are directly connected with execution of the order execution, including execution venue fees, compensation and settlement fees as well as any other fee paid to third parties in relation to execution of the order. 4.2 Execution venues Order execution venues shall mean: the regulated markets; the multilateral trading facilities (MTF); the systematic internalisers; the market makers; own traders; 7
equivalent non-eu venues. 4.3 Best execution factors The main factor considered by the Company to ensure best order execution is the price at which the order is executed. In addition to price, the Company may, in order to attain best execution, give precedence to other factors that, in relation to size (in terms of trading quantity to trade and estimated value) and the characteristics of the order to be executed (for example, listed or unlisted financial instrument), may prove relevant as they influence how the price is calculated: market impact, liquidity and size, costs (as commissions and other trading costs), speed of execution, likelihood of execution and settlement. 4.3.1 Price The valuation of the opportunities to attain the most favourable conditions for trading, within the scope of each execution venue, is primarily associated with the price at which the transactions are executed. In order to select the execution venue for trading orders, the Company evaluates the quality of the prices expressed on a long-term basis and the method for formulating the price of each of these, while evaluating liquidity and size. 4.3.2 Market impact In executing orders, the Company especially considers those having significant value and possible impact on the market. Market impact is intended as the effect that market participants generate when they buy or sell a financial instrument on the market. 4.3.3 Liquidity and size In executing orders, the Company evaluates the continuing exposure to the buy and sell proposals for the financial instruments being traded, through which it guarantees liquidity and the size of the relevant trades. 4.3.4 Costs The Company takes into account the transaction costs for each potential execution venue. In particular: costs incurred to pay for third party services (ex: the Stock Market, key intermediaries on the regulated market, clearing house and custodian bank fees) and trading venues access costs, 8
costs and commissions associated with the services provided by any external intermediaries used to transmit orders to the execution venues. 4.3.5 Execution speed The speed indicates the time from when the order is transmitted to when it is executed at the trading venue. The execution speed for each trading venue is primarily determined by the operating method of the relative trading venue. 4.3.6 Likelihood of order execution and settlement The likelihood that an order will be executed at the trading venue depends to a large extent on the liquidity of the financial instrument and the size of the trading venue. The Company also takes into consideration the risks arising from the likelihood that trading orders may be only partially executed. Moreover, the Company takes into account the risk associated with the possibility that, once the trading order is executed, settlement of the transaction may not duly complete in terms of the delivery of the financial instrument being traded (so-called technical failure ). 4.4 Selection of brokers Generali SGR selects entities whose execution policy is in line with the best execution strategy as set out in this document. In order to ascertain whether the broker will provide the best possible result, Generali SGR alternatively evaluates if each entity: - is subject to article 21 of the Directive 2004/39 and agrees to treat Generali SGR as a retail or professional customer; - is willing to enter into binding agreements for the fulfilment of the obligations set out by article 21 of Directive 2004/39; and - can demonstrate a high quality of execution for the type of orders that are transmitted to it. Generali SGR can even select the entity based on the following criteria: a) Commissions The Company takes into consideration the commissions charged by the entity for executing the transmitted orders; b) Organisational structure and management of conflicts of interest 9
The entity s organisational structure and management of conflicts of interest must allow for the correct and optimum execution of transmitted orders and must be fully compliant with any applicable regulations; c) Quality and efficiency of the services provided and, in particular, of the information on execution; d) Capacity of the entity to minimise total trading costs, while maintaining its financial stability. Generali SGR verifies if the entity is able to maintain and use suitable capital and if it is able to operate during periods of high market volatility; e) Level of trading competence Evaluation of the entity s competence takes into consideration the following aspects: - transaction execution speed, - ability to execute unusual volumes; f) Access to the primary market Generali SGR verifies the entity s participation to the primary market transactions (IPOs, etc.); g) Quality of the settlement stage Generali SGR evaluates the efficiency of the entity in settlement activities; h) Capital solidity Generali SGR evaluates the entity s financial status, taking into account its rating, where available. 10
5 TRANSMISSION AND EXECUTION OF ORDERS 5.1 General provisions Generali SGR has identified methods for pursuing the best execution strategy as described in this document. In consideration of the totality of the factors and the best execution criteria described in the above paragraphs and taking into account the principles of sound and prudent management as well as its organisational structure, Generali SGR shall adopt the transmission and execution strategy described in this section of the Execution Policy in relation to the different types of financial instruments. In particular, Generali SGR has identified operating methods regarding the transmission or execution of orders for each of the following types of financial instruments, as redefined in article 1 of the Consolidated Financial Act ( TUF ) implementing the MiFID Directive (Annex I, Section C, and article 4, Paragraphs 1.17 and 1.18 of the MiFID Directive) and reported, for ease of reference, in Annex A hereto: shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares; bonds or other forms of securitised debt, including depositary receipts in respect of such securities; any other transferable 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; derivatives (pursuant to MiFID classification) listed on regulated markets; OTC traded derivatives; parts of Collective Investment Schemes. 5.2 Equity instruments For equity financial instruments, Generali SGR has adopted the following TRANSMISSION STRATEGY. For the transmission of orders on the equity market, Generali SGR uses any of the entities included in the List of Brokers attached hereto as Annex B, in accordance with the relative execution policy, after having ascertained that this choice is suitable for achieving a better result. 11
In light of the above and considering the methods from time to time specifically adopted, the Company shall place particular emphasis on monitoring and reviewing activities, to ensure that the decision taken is effectively the most advantageous in the interest of the Collective Investment Schemes under management and customer portfolios. 5.3 Monetary or bond instruments Generali SGR has adopted the following EXECUTION STRATEGY for this category of financial instruments. Generali SGR participates on the Bondvision regulated market as well as on two multilateral trading facilities ( Tradeweb Europe Limited and Market Axess Europe Limited ) and opts for the direct execution on the market for each instrument listed therein, depending on the type of transaction and taking into consideration the factors set out above. Alternatively, Generali SGR may draw on the services of a suitable number of brokers (pursuant to the aforementioned List of Brokers) for certain types of orders, who will be asked to quote the specific financial instrument: in these circumstances, the brokers will act as dealers trading their positions in RFQ ( request for quote ) mode. On the basis of criteria set out above and subsequent to notice on pricing, Generali SGR shall execute the transaction at the best conditions it finds. The operating method used by the intermediary as part of this activity - with reference to the English terminology for the new operating circumstances on MiFID markets - will qualify the intermediary in its relations with Generali SGR according to equivalent formulas, listed below: - Intermediary will not be acting on your behalf, - Intermediary will not be acting as your agent, - Intermediary is dealing as principal for its own account, - Intermediary is dealing as counterparty, without any undertaking to provide best execution. A TRANSMISSION STRATEGY can be adopted for sending the order to the broker selected from said List of Brokers pursuant to the Execution Strategy described above and in relation to specific trading characteristics of the instrument, as part of individual and collective management, after having ascertained that the decision was suitable for achieving a better result. The selected intermediary shall act in accordance with the below equivalent formulas: - Intermediary will be acting on your behalf, - Intermediary will be acting as your agent, with undertaking to provide best execution. 12
5.4 Transferable securities that enable the sale and purchase of other transferable securities For this category of financial instruments, Generali SGR has adopted the following TRANSMISSION STRATEGY. Generali SGR transmits orders for the instruments listed above to one or more key brokers, selected in line with the principles of this policy. 5.5. Listed derivatives For this category of financial instruments, Generali SGR has adopted the following TRANSMISSION STRATEGY. Generali SGR draws on external intermediaries to execute trading orders in relation to regulated derivative instruments. In particular, Generali SGR transmits orders for the above instruments to one or more key brokers, selected in line with the principles of this policy. 5.6 OTC derivatives For this category of financial instruments, Generali SGR has adopted the following EXECUTION STRATEGY. The Company deals in OTC traded derivative instruments with duly licensed intermediaries. In this regard, in relation to the type of transaction and taking into account the factors and criteria described in the sections above, the Company requests pricing of the instrument from a suitable number of intermediaries and executes the transactions at the best conditions it finds. 5.7 Parts of Collective Investment Schemes For this category of financial instruments, Generali SGR has adopted the following TRANSMISSION STRATEGY. Within the scope of its transactions regarding Individual and Collective Portfolio Management, the Company deals in Collective Investment Scheme units and shares. In this regard, the Company directly subscribes Collective Investment Scheme units and shares from the corresponding entity or trades them on secondary markets. The transaction is executed on the basis of the NAV on the subscription/trading date. Generali SGR always seeks the best commission class for each transaction and each type of customer. 13
6 MONITORING OF THE EXECUTION POLICY The Compliance Function of Generali SGR checks the respect of conditions, methods and criteria contained and defined in this document on a continuous basis with assistance from dedicated internal units. The Compliance Function reports to the Board of Directors of Generali SGR on such transactions accordingly. 14
7 TERMS OF REVISION OF THE EXECUTION POLICY At least once a year and whenever there is a relevant change that influences the Company s capacity to continue to obtain the best possible result for the execution of customer orders, Generali SGR reviews this Internal Execution Policy, defining, where necessary, the criteria and operating methods for attaining the defined best execution objectives. Internal Execution Policy updates are approved by the Board of Directors of Generali SGR. 15
Annex A List of Financial Instruments (1) Securities, as well as categories of securities, excluded for the instruments of payment, negotiable in the capital market, as for example: a) shares and other securities representing equity capital, of partnership or of other subjects and share deposit certificates; b) bonds and other securities included deposit certificates relative to this securities; c) any other security normally dealt in giving the right to acquire the instruments referred to in the preceding subparagraphs and the related indices; d) any other security that must be settled in cash with reference to securities referred to in the preceding letters, a values, interest rates, incomes, commodities, indicators or measures; (2) Securities normally dealt in on the money market, as, for example, treasury bills, deposit certificates and commercial papers; (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 not otherwise mentioned in C.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 Section, 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) Other derivatives identified by the Economy and Finance Minister in article 18, paragraph 5 of TUF and in particular: 16
a) other derivative contracts mentioned above under item (7), having the characteristics of other derivatives, cleared and settled through recognised clearing houses or are subject to regular margin calls; b) other derivative contracts mentioned above under item (10), having the characteristics of other derivatives, traded on a regulated market and/or an MTF, cleared and settled through recognised clearing houses or are subject to regular margin calls; Derivatives shall mean the financial instruments specified in the points from (4) to (10) indicated above. Instruments of payment shall not be considered financial instruments. 17
Annex B List of Brokers (Updated on 16 December 2016) AUREL BGC - PARIS AUTONOMOUS - LONDON BANCA AKROS SPA -MILANO BANCA GENERALI SPA - TRIESTE BANCA IMI - MILANO BANCO BILBAO VIZC. ARG.-MADRID BANCO SANTANDER SA - MADRID BANK OF AMERICA MERR LYNCH - LN BANK VONTOBEL AG-ZURICH BARCLAYS BANK PLC - LONDON BAYERISCHE LANDESBANK BNP PARIBAS - LONDON BNP PARIBAS - PARIS BNP PARIBAS ARBITRAGE-PARIS BRED BANQUE POPULAIRE - PARIS BRULL KALLMUS - GRAZ BSI - LUGANO CAIXABANK SA - BARCELONA CITIBANK INTL - LONDON CITIGROUP GLOB MARKET INC-NY CITIGROUP GLOB MARKET LTD-LN COMMERZBANK AG - FRANKFURT CREDIT AGRICOLE CIB - PARIS CREDIT SUISSE (USA)-NEW YORK CREDIT SUISSE INTL - LONDON CREDIT SUISSE SEC (EUROPE)-LON CREDIT SUISSE - ZURICH DANSKE BANK AS-COPENAGHEN DEUTSCHE BANK AG - LONDON DEUTSCHE BANK AG-FRANKFURT DZ BANK AG - FRANKFURT EQUITA SIM SPA-MILANO ERSTE BK OSTERREICH SPARK-WIEN EXANE SA - PARIS EXANE LTD - London GFI SECURITIES LTD - LONDON GFI SECURITIES LTD - PARIS GOLDMAN SACHS CAPITAL MKT-NY GOLDMAN SACHS INTL-LONDON HSBC BANK PLC - LONDON 18
HSH NORDBANK AG - KIEL IKB DEUT INDUSTRIENBANK AG - DUS ING BANK NV- AMSTERDAM INSTINET EUROPE LTD-LONDON INTERMONTE SIM-MILANO INTESA SANPAOLO - MILANO JEFFERIES INTL LTD - LONDON JOH BERENBERG GOSSLER-HAMBURG JP MORGAN CHASE BANK-LONDON JP MORGAN SEC LLC - NEW YORK JP MORGAN SEC PLC - LONDON KEMPEN & CO NV-AMSTERDAM KEPLER CHEUVREUX SA-PARIS LANDESBK BADEN-WUERTTEMBERG-ST LANDESBK HESSEN THU- FRANKFURT LEMANIK SA - LUGANO LLOYDS BANK PLC -LONDON MEDIOBANCA - MILANO MERRILL LYNCH INTL -LONDON MITSUBISHI UFJ SEC INTL - LONDON MIZUHO INTL PLC - LONDON MORGAN STANLEY & CO INT-LONDON MPS CAP SVCS BCA IMPRESE - FIRENZE NATIXIS SA - PARIS NOMURA INTL PLC -LONDON NORDDEUTSCHE LANDESBK-HANNOVER NORDEA BANK FINLAN- HELSINKI OCTO FINANCES - PARIS ODDO ET CIE - PARIS PANTELAKIS SECURITIES ATHENS RABOBANK NEDERLAND -UTRECHT RAIFFEISEN ZENTRALBK OEST-WIEN ROYAL BANK SCOTLAND PLC-LONDON ROYAL BK OF CANADA EUROPE-LN SMBC NIKKO CAPITAL MARKETS LTD-LONDON SOCIETE GENERALE - LONDON SOCIETE GENERALE -PARIS STANDARD CHARTERED BK - LONDON STIFEL NICOLAUS EUROPE LTD-LON STORMHARBOUR SECURITIES LLP - LONDON UBS AG - LONDON BRANCH UBS LTD - LONDON UBS SECURITIES LLC - NEW YORK UNICREDIT BANK AG - MONAC UNICREDIT BK AG (ITALY)-MILAN 19
WELLS FARGO SECURITY - LONDON ZUERCHER KANTONALBANK - ZURICH 20