COB 7.7 Aggregation and allocation

This section applies to a firm when it aggregates a customer order with an own account order, or with an order from a market counterparty, or with another customer order, while conducting designated investment business.

When a firm aggregates a customer order with an own account order, or with an order from a market counterparty, or with another customer order, and subsequently allocates the designated investments concerned, it must do so in accordance with a written policy on allocation that is consistently applied and that fulfils the requirements of this section.

A firm may not aggregate a customer order with an own account order, or with an order from a market counterparty, or with another customer order, unless:

1. (1)

   it is likely that the aggregation will not work to the disadvantage of each of the customers concerned; and

2. (2)

   it has disclosed either orally or in writing to each customer concerned, either specifically or in the terms of business, that the effect of aggregation may work on some occasions to its disadvantage.

When a firm has aggregated a customer order with an own account order, or with an order from a market counterparty, or with another customer order, and part or all of the aggregated order has been filled, it must promptly allocate the designated investments concerned.

When a firm executes an aggregated order that combines:

1. (1)

   a customer order and an own account order; or

2. (2)

   a customer order and an order from a market counterparty (other than an associate of the firm); or

3. (3)

   a customer order and another customer order;

in the subsequent allocation it must:

1. (4)

   not give unfair preference to the firm or to any of those for whom it dealt; and

2. (5)

   where (1) applies, give priority to satisfying customer orders, if the aggregate total of all orders cannot be satisfied, unless it can demonstrate on reasonable grounds that without its own participation it would not have been able to execute those orders on such favourable terms, or at all.

A firm may treat the following as a customer order:

1. (1)

   a transaction on the account of the life fund of an insurance company, when the insurance company is in the same group as the firm (or is the firm);

2. (2)

   a transaction for the account of an investment trust or a collective investment scheme that is a body corporate in the same group as the firm;

3. (3)

   a transaction for the account of an employee (or a close relative) of the firm or of its associate, or a trustee acting on his behalf, but only when the transaction is undertaken on a pre-established and recorded basis;

4. (4)

   a transaction for the firm's occupational pension scheme.

A firm may undertake a revised allocation of an aggregated order if:

1. (1)

   an error is identified in either the intended basis of allocation or the actual allocation, provided that the firm makes a record of the reason for the re-allocation and completes it within one business day of the error being identified; or

2. (2)

   the order is only partially executed resulting in an uneconomic allocation to some customers; in such a case the firm must take reasonable steps to ensure that a re-allocation is in the best interests of the customers for whom it has dealt; and

3. (3)

   the revised allocation is carried out in accordance with COB 7.7.12 R.

When a firm has executed an aggregated order or is undertaking a revised allocation as described in COB 7.7.11 R, then it must allocate that order either at:

1. (1)

   the price paid for each designated investment concerned (net of all relevant fees and commissions); or

2. (2)

   a volume-weighted average of the prices of a series of transactions.

1. (1)

   A firm must, on executing an aggregated transaction that includes one or more customer orders, make a record of:

   1. (a)

      the identity of each client concerned;

   2. (b)

      whether the transaction is to be transacted in whole or in part for a discretionary managed investment portfolio and, if in part, the relevant proportions.

2. (2)

   If a firm aggregates a number of client orders that include one or more customer orders, the firm must make a record of the intended basis of allocation as soon as is practicable.

3. (3)

   If a firm aggregates an order for one or more customers and itself, the firm must make a record of the intended basis of allocation before the transaction is executed.

When allocating an aggregated transaction that includes the execution of one or more customer orders, a firm must make a record of:

1. (1)

   the date and time of the allocation;

2. (2)

   the relevant designated investment;

3. (3)

   the identity of each customer and market counterparty concerned;

4. (4)

   the amount allocated to each respective customer, market counterparty and to the firm; and

5. (5)

   the agreement with each intermediate customer to extend the allocation period under COB 7.7.6 E (2)(b).

A firm must make a record of the basis of and reason for any re-allocation made in accordance with COB 7.7.11 R at the time of the re-allocation.

A firm must retain the records required by COB 7.7 for a period of at least three years from the date on which the order is allocated or re-allocated.