MAINFIRST GROUP BEST EXECUTION POLICY Effective: July 2014 1. Introduction Pursuant to applicable rules 1 MainFirst Bank AG, MainFirst Schweiz AG and in general the MainFirst Group (hereinafter referred to as MainFirst ) are required to act honestly, fairly and professionally in accordance with the best interest of clients, when providing investment and ancillary services 2. When carrying out client orders in financial instruments 3, MainFirst shall take all reasonable steps to execute such orders on terms most favourable to clients. In particular, MainFirst is required to establish and implement an effective order execution policy (hereinafter referred to as Best Execution Policy or Policy ). Furthermore it shall provide appropriate information to clients including potential clients on its order execution policy and obtain their prior consent thereto, where applicable. 2. Purpose This Policy sets out the MainFirst principles and general approach for carrying out client orders in financial instruments while obtaining the best possible result for clients taking into account considerations relevant to the execution of the order. The Policy describes the execution approach from the time that an order originates to the time that it is executed or settled, as the case may be, sets out the execution venues or entities MainFirst uses and the role of execution quality and any other factors in selecting them, explains how different factors influence the MainFirst execution approach and why the execution approach will deliver the best possible result for the execution of those client orders. It forms part of the client agreement for the provision of investment and ancillary services. 3. The Best Execution Obligation 3.1 The Overarching Obligation The Policy applies to MainFirst investment firms when carrying out client orders in financial instruments for execution whereby carrying out encompasses: (i) executing a client order, whether or not dealing on account of a client or on own account when executing the order on client s behalf; (ii) when providing the service of reception and transmission of client orders (RTO), transmitting client orders to other entities for execution, and 1 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments ( MiFID ), Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC, Section 33a of the German Securities Trading Act (Wertpapierhandelsgesetz; WpHG), the German Regulation on the Concretization of Market Conduct and Organizational Requirements of Investment Firms ( WpDVerOV ), and any further applicable laws and regulations 2 As set out in Annex I, Sections A and B of MiFID 3 As defined in Annex I Section C of MiFID
(iii) when providing the service of portfolio management (e.g. for investment funds and managed account clients), placing an order with an entity for execution that results from a decision to deal in financial instruments on behalf of a client. The obligation to deliver the best possible result when executing client orders applies in relation to all types of financial instruments. However, given the differences in market structures or the structure of financial instruments, it may be difficult to identify and apply a uniform standard of and procedure for best execution that would be valid and effective for all classes of instruments. Best execution obligations therefore apply in a manner that takes into account the different circumstances associated with the execution of orders related to particular types of financial instruments. For example, transactions involving a customized OTC financial instrument that involve a unique contractual relationship tailored to the circumstances of the client and the investment firm may not be comparable for best execution purposes with transactions involving shares traded on centralized execution venues. 3.2 Clients MainFirst applies best execution obligations when dealing on behalf of all clients. The objective is to afford all clients, including clients that would qualify as eligible counterparties but are classified by MainFirst as professional clients 4, an increased level of regulatory protection. An exception applies in case of clients that qualify and are categorized by MainFirst under certain circumstances as Eligible Counterparties in general or for the particular investment or ancillary service (e.g. in case of fixed income related services). The scope depends on whether MainFirst is executing the order directly. If MainFirst directly executes a client order or directly executes discretionary investment management decisions to deal on behalf of clients, all the best execution rules under this Policy apply. In case it transmits client orders to other entities for execution or places discretionary investment management decisions to deal on behalf of clients with other entities for execution, the rules on consent and demonstrating adherence to the policy do not apply. 3.3 Specific Instructions Notwithstanding the overarching obligation, whenever there is a specific instruction from a client to the order or to a specific aspect of the order, MainFirst must execute the order in accordance with that instruction and does not need to apply the best execution provisions in relation to those matters that the instruction specifies. However, MainFirst will still apply best execution requirements to those parts of a client order not covered by the client instruction. 4 As set out in Annex II of MiFID 2
3.4 Dealing in Quotes When MainFirst executes a client order against its own proprietary position, where MainFirst is making decisions as to how the order is executed by e.g. working the order on behalf of the client, the best execution obligations apply. If MainFirst provides a quote to a client and that quote would meet MainFirst obligations relating to best execution if MainFirst executed that quote at the time the quote was provided, then MainFirst will meet those same obligations if it executes its quote after the client accepts it, provided that, taking into account the changing market conditions and the time elapsed between the offer and acceptance of the quote, the quote is not manifestly out of date. By contrast, when MainFirst exceptionally enters into a proprietary trade where the order is not executed on behalf of the client or in case where MainFirst engages in proprietary trading by quoting on a request for quote basis, then the best execution requirements do not apply. The key concept is whether the execution of orders is on behalf of clients. In particular, in case of dealing on a Request for Quote (RFQ) basis the distinction is whether the client relies on MainFirst getting the best price for the client or whether merely requests or takes a price from MainFirst making its own decision as to whether this is the best price. 3.5 Fixed Price Transactions Fixed price transactions are transactions whereby the client is expressly giving an order at a fixed price. Best execution is met when the order is executed at the price determined by the client. 3.6 Structured Transactions The Best Execution obligation applies in very limited form to structured or clienttailored or customized off-exchange (OTC) transactions where due to the unique contractual structure entered into between the client and MainFirst, it is not possible to provide any comparison with other transactions or instruments. Although Best Execution technically applies, there is little or nothing against which to compare the transaction. This applies if it is (1) an OTC transaction, which is (2) highly structured or customized to the particular client and therefore (3) is not one of the series of similar deals to which MainFirst is the counterparty. 3.7 Single Venue Transactions When there is only one possible venue where the order can be executed, best execution is achieved by execution on that venue (Single Execution Venue). 3.8 Different Terms of Execution in Particular Cases If extraordinary market conditions or market interferences should make it necessary to execute a specific order other than in compliance with the Best Execution Policy, MainFirst shall choose such alternative execution method while safeguarding the client s interests. 3
3.9 Unwinding a Position for a Client If MainFirst is required to unwind a position for the client e.g. in case of default under the agreement with MainFirst or otherwise, the best execution obligations do not apply. 3.10 Dealing with Market Participants Best Execution obligations are not applicable when dealing with other market participants in a regulated market or a Multilateral Trading Facility ( MTF ). 3.11 Issue or Redemption of Shares in Investment Funds The issue or redemption of shares in investment funds is not subject to best execution obligations. MainFirst shall execute any client trading orders linked to a particular venue according to client instructions. 3.12 Best Execution Factors MainFirst takes all reasonable steps to obtain, when executing orders, the best possible result for our clients taking into account price, costs, speed of execution, likelihood of execution, speed of settlement, likelihood of settlement, size of the order, nature of the order or any other consideration relevant to the execution of the order. Nevertheless, whenever there is a specific instruction from the client MainFirst shall execute the order following the specific instruction. 3.13 Best Execution Criteria MainFirst shall take into account the following criteria in order to determine the relative importance of the above factors: (a) the characteristics of the client including the categorization of the client as professional ; (b) the characteristics of the client order (e.g. stop loss, market or limit of order, size or likely impact); (c) the characteristics of financial instruments that are the subject of that order (e.g. equity or fixed income securities, derivatives or convertibles, liquid or illiquid instruments, structured or customized); (d) the characteristics of the execution venues to which that order can be directed (e.g. transaction cost on that venue, market liquidity, ability to manage complex orders). MainFirst is responsible for assessing the relative importance of the factors, taking into account these criteria. In most circumstances price (i.e. the price available and the depth of liquidity available at that price e.g. in case of equity, listed OTC, Exchange Traded Funds (ETF), derivative products, fixed income products, units in collective investment undertakings and interest rate derivative products) and cost (i.e. the fees and commissions charged to clients for the execution including execution on a particular venue, clearing and settlement cost e.g. in case of UCITS and AIFMs) 4
will merit a high relative importance in obtaining the best possible result for professional clients, although there will be circumstances where other factors will be more important. Speed (e.g. in case of equity, fixed income products, open-ended and closed-ended mutual funds), likelihood of execution and settlement (e.g. market liquidity for the particular product in case of listed equities, fixed income products, derivatives, mutual funds), the size and nature of the order, market impact and any other implicit transaction costs may be given precedence if they are instrumental in delivering the best possible result. The factors are weighed in a manner that is appropriate to the particular type of client including the Client categorization as a professional client. 3.14 Execution Venues Execution venue means a regulated market, an MTF, a systematic internalizer, or a market maker or other liquidity provider or an entity that performs a similar function in a third country to the functions performed by any of the foregoing. MainFirst considers the execution venues listed in Appendix A, as appropriate for each class of instruments, in order to obtain on a consistent basis the best possible result for the execution of client orders. The list is not exhaustive and may be subject to change as set out in this Policy. The focus is on the quality of execution available on the various venues. Best execution quality is according to the factors relevant to the execution of the order including in terms of available prices. When choosing a venue from among the venues included in Appendix A that are capable of executing the client order, the fees and commissions charged to clients will be a relevant component of costs. Upon request, we provide further information on the different venues included in Appendix A. There may be circumstances in which only one particular execution venue or entity will deliver the best possible result on a consistent basis for some instruments and orders. For other types of instruments and orders, there may be a variety of potential execution venues but the costs of accessing more than one of them directly (to the extent that such costs would be passed on to clients) may outweigh any price improvement an alternative venue might offer. It may therefore be reasonable in some circumstances to decide against connecting to such venues. In such cases MainFirst may consider transmitting the order to another execution intermediary rather than executing orders itself. MainFirst does not structure or charge commissions in such a way as to discriminate unfairly between execution venues. 4. Duties when Carrying Out Portfolio Management or RTO when Placing or Transmitting Orders to Other Entities for Execution. Selection Policy When providing the service of portfolio management or when providing the service of reception and transmission of orders, MainFirst may place orders with or transmit orders to other RTOs or investment firms that execute client orders (collectively intermediaries ). MainFirst may also transmit orders to exchanges via direct market access (DMA) connectivity provided by other brokers. MainFirst shall take all 5
reasonable steps to obtain the best possible result for the client taking into account the best execution factors and criteria mentioned above. A non-exhaustive list of intermediaries, in respect of each class of instrument, with which the orders are placed or to which MainFirst transmits orders for execution are included in Appendix B. Selection of the intermediaries takes place upon assessment by MainFirst on the basis of the relevant best execution factors and criteria. Particular factors taken into account are the competitiveness of commission rates and spreads, the promptness of execution, the past history in executing orders, the clearance and settlement capabilities, the quality of information and research service, the access to markets and the perceived creditworthiness, their reputation and financial stability. When providing the service of portfolio management particular factors in the broker selection process are the order execution policy of the broker, the execution price delivered, the liquidity delivered, the settlement quality, the program trading capacity, the market conformity of the transaction commission, the market knowledge and service, the research and sales quality and the access to analysts and companies. These factors are weighed in a manner that is appropriate to the particular type of client, financial instrument and type of order. The intermediaries must have arrangements that enable MainFirst to comply with its obligations. They are subject to the MainFirst counterparty acceptance policy and prior and on-going due diligence on anti-money laundering, anti-terrorism financing and anti-financial crime grounds. MainFirst monitors on a regular basis the effectiveness of this policy and in particular the execution quality of the entities identified and, where appropriate, corrects any deficiencies. The list of intermediaries is reviewed on an annual and in case of portfolio management on a quarterly basis. MainFirst satisfies its obligation to act in the best interest of its clients and is not required to take any further steps to the extent it follows specific instructions from its client when placing an order with, or transmitting an order to, another entity for execution. When MainFirst specifies a venue to an intermediary when transmitting the order or when it gives specific instructions as to the execution of the order, Main First has to meet best execution obligations. 5. Monitoring and Review MainFirst monitors, assesses and reviews on an annual basis or ad hoc in case of material changes e.g. if a significant new execution venue emerges- the effectiveness of its order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies and improve the quality of execution service to clients. In particular, it assesses, on a regular basis, whether the execution venues included in the policy provide for the best possible result for the client or whether changes in the execution arrangements are needed. Clients are notified of any material changes to the order execution arrangements or execution policy. Policy updates are posted for client information on the MainFirst website www.mainfirst.com. 6
6. Roles and Responsibilities Management is responsible for ensuring compliance with this policy at MainFirst legal entity and area of business level. Operations and Risk Management are involved with supervisory activities including monitor and control procedures. Compliance provides advice and assists with the formulation, implementation, awareness and monitoring of this policy and implementing policies and procedures. 7
Appendix A List of Execution Venues This is a non-exhaustive list of the principal venues MainFirst uses when executing orders in financial instruments either directly or via an executing broker in compliance with best execution obligations under this Policy. The list is regularly reviewed and subject to change as set out in the Policy. Type of Financial Instrument Execution Venues Listed Equities Frankfurt Stock Exchange (Deutsche Boerse), Xetra (Electronic Trading Platform), Berlin Stock Exchange, Düsseldorf Stock Exchange, Hamburg Stock Exchange, Hannover Stock Exchange, Munich Stock Exchange, Stuttgart Stock Exchange; SIX Swiss Exchange, London Stock Exchange (LSE), Athens Stock Exchange, Bolsa de Madrid, Borsa Italiana S.p.A., NYSE Euronext (Amsterdam, Brussels, Lisbon and Paris), Oslo Stock Exchange, Vienna Stock Exchange, Irish Stock Exchange, NASDAQ OMX (Copenhagen, Stockholm, and Helsinki); BATS Trading Ltd, Turquoise; Broker Crossing Networks (BCNs) Exchange Traded Derivatives Eurex Deutschland, Eurex Schweiz Fixed Income Products Frankfurt Stock Exchange (Deutsche Boerse), Berlin Stock Exchange, Düsseldorf Stock Exchange, Hamburg Stock Exchange, Hannover Stock Exchange, Munich Stock Exchange, Stuttgart Stock Exchange; MainFirst acting as counterparty (against own book); a market participant acting as a counterparty via Bloomberg OTC Instruments & OTC Derivatives Exchange Traded Funds (ETF) Units in Collective Investment Undertakings (Open-Ended) Units in Collective Investment Undertakings (Closed-Ended) A market maker in the respective financial instrument including MainFirst acting as counterparty (against its own book) Xetra (Electronic Platform) The fund administrator or where relevant, the relevant regulated market The regulated market with the principal pool of liquidity, the only regulated market or MainFirst acting as a counterparty 8
Appendix B List of Executing Brokers This is a non-exhaustive list of intermediaries per type of financial instrument MainFirst places significant reliance upon in meeting its best execution obligations under this Policy when providing the service of portfolio management or when providing the service of reception and transmission of orders. The list is regularly reviewed and subject to change as set out in the Policy. Type of Financial Instrument Business Line Preferred Brokers Listed Equities Equity Brokerage Brokers as reviewed and approved by Brokerage Management. Top firms include Alpha Wertpapierhandels GmbH, ICF Kursmakler AG, Schnigge Wertpapierhan-delsbank AG and Hellwig Wertpapierhandelsbank AG Equity & Bonds Asset Management Brokers as set up upon review and approval by the Asset Management Committee: Barclays, Berenberg, Commerzbank, Danske Bank, Deutsche Bank, BNP Exane, Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America, Merrill Lynch, MainFirst Bank AG, Nordea, Oddo, Rabobank, UBS. Listed Derivatives Asset Management Brokers as set up upon review and approval by the Asset Management Committee: Barclays, JP Morgan, MainFirst Bank AG Zurich, July 2014 MainFirst Holding AG 9