COBS 11.2B Best execution for UCITS management companies

A management company must act in the best interests of each scheme it manages when executing decisions to deal on behalf of the scheme.

[Note: article 25(1) of the UCITS implementing Directive]

A management company must take all sufficient steps to obtain, when executing decisions to deal, the best possible result for each scheme it manages, taking into account:

1. (1)

   price;

2. (2)

   costs;

3. (3)

   speed;

4. (4)

   likelihood of execution;

5. (5)

   likelihood of settlement;

6. (6)

   order size and nature; and

7. (7)

   any other consideration relevant to the execution of the decision to deal,

(together the “execution factors”).

[Note: article 25(2) first sentence of the UCITS implementing Directive]

A management company must determine the relative importance of the execution factors, taking into account the following criteria:

1. (1)

   the objectives, investment policy and risks specific to the scheme, as indicated in its prospectus or instrument constituting the fund;

2. (2)

   the characteristics of the order, including where the order involves a securities financing transaction;

3. (3)

   the characteristics of the financial instruments that are the subject of that order; and

4. (4)

   the characteristics of the execution venues to which that order can be directed.

[Note: article 25(2) second sentence of the UCITS implementing Directive]

A management company must take into account its own commissions and costs for executing an order, when assessing and comparing the results that would be achieved for a scheme by executing the order on each of the execution venues listed in the management company’s execution policy that is capable of executing that order.

A management company must not receive any remuneration, discount or non-monetary benefit for routing orders to a particular trading venue or execution venue which would infringe the requirements on conflicts of interest (in SYSC 10) or inducements (in COBS 2.3 and COBS 18 Annex 1).

A management company must not structure or charge its commission in a way that discriminates unfairly between execution venues.

When executing orders or taking decisions to deal in OTC products including bespoke products, the management company must check the fairness of the price proposed to the scheme, by gathering market data used to estimate the price of such products and, where possible, by comparing with similar or comparable products.

A management company must act in the best interests of each scheme it manages when placing orders to deal on behalf of that scheme with other entities for execution.

[Note: article 26(1) of the UCITS implementing Directive]

1. (1)

   A management company must take all sufficient steps to obtain the best possible result for each scheme it manages when placing orders to deal on behalf of that scheme with other entities, taking into account the execution factors.

2. (2)

   A management company must determine the relative importance of the execution factors in accordance with COBS 11.2B.7R.

[Note: article 26(2) first and second sentences of the first paragraph of the UCITS implementing Directive]

1. (1)

   A management company must establish and implement effective arrangements for complying with the obligation to take all sufficient steps to obtain the best possible result for each scheme it manages.

2. (2)

   In particular, the management company must establish and implement an order execution policy to allow it to obtain the best possible result for each scheme it manages when:

   1. (a)

      executing orders on behalf of the scheme (in accordance with COBS 11.2B.5R); and

   2. (b)

      placing orders with other entities for execution (in accordance with COBS 11.2B.15R(1)).

[Note: articles 25(3) first paragraph and 26(2) third sentence of the first paragraph of the UCITS implementing Directive]

1. (1)

   The order execution policy must include, for each type of financial instrument, information on the different execution venues where the management company executes its scheme orders and the factors affecting the choice of execution venue.

2. (2)

   It must at least include execution venues that enable the management company to obtain the best possible result for the execution of scheme orders on a consistent basis.

1. (1)

   The order execution policy must identify, for each type of financial instrument, the entities with which orders are placed or to which the management company transmits orders for execution.

2. (2)

   The entities identified must have execution arrangements that enable the management company to comply with its obligations under this section when it places or transmits orders to that entity for execution.

[Note: article 26(2) fourth sentence of the first paragraph and first sentence of the second paragraph]

A management company must be able to demonstrate that it has executed or placed orders on behalf of each scheme it manages in accordance with its execution policy.

[Note: articles 25(5) and 26(4) of the UCITS implementing Directive]

1. (1)

   A management company of an ICVC that is a UCITS scheme, or an EEA UCITS scheme that is structured as an investment company, must obtain the prior consent of the ICVC or investment company to the execution policy.

2. (2)

   In the case of a management company that is the ACD of an ICVC that is a UCITS scheme, (1) does not apply where the ACD is the sole director of the ICVC.

[Note: article 25(3) first sentence of the second paragraph of the UCITS implementing Directive]

1. (1)

   A management company must monitor the effectiveness of its order execution arrangements and policy on a regular basis to identify and, where appropriate, correct any deficiencies.

2. (2)

   A management company that places orders with other entities for execution must in particular monitor the execution quality of those entities on a regular basis to identify and, where appropriate, correct any deficiencies.

3. (3)

   A management company must assess, on a regular basis:

   1. (a)

      whether the execution venues included in the order execution policy provide for the best possible result for the schemes it manages; and

   2. (b)

      whether it needs to make changes to its execution arrangements taking into account the information published in accordance with COBS 11.2A.39R, COBS 11.2B.36R, COBS 11.2C and the provisions referred to in COBS 11.2B.30G.

[Note: article 25(4) first sentence, and article 26(3) first paragraph of the UCITS implementing Directive]

A management company must:

1. (1)
   1. (a)

      assess whether a material change has occurred in its order execution arrangements; and

   2. (b)

      if so, consider making changes to the execution venues or entities on which it places significant reliance in meeting the overarching best execution requirement; and

2. (2)

   review its execution policy, as well as its order execution arrangements:

   1. (a)

      at least annually; and

   2. (b)

      whenever a material change occurs that affects the management company’s ability to continue to obtain the best possible result for the scheme.

[Note: article 25(4) second sentence, and article 26(3) second paragraph of the UCITS implementing Directive]

A management company must make available to the unitholders of each scheme it manages appropriate information on its execution policy and on any material changes to that policy.

[Note: articles 25(3) second sentence of the second paragraph and 26(2) second sentence of the second paragraph of the UCITS implementing Directive]

The information on the execution policy must:

1. (1)

   be customised depending on the type of financial instrument and type of service provided; and

2. (2)

   include the information in COBS 11.2B.33R and COBS 11.2B.35R(1) to COBS 11.2B.35R(4).

A management company must make available the following details on its execution policy:

1. (1)

   an account of the relative importance the management company assigns to the execution factors, or the process by which the management company determines the relative importance of the execution factors;

2. (2)

   a list of the execution venues on which the management company places significant reliance in meeting its obligation to take all reasonable steps to obtain the best possible result for the execution of scheme orders on a consistent basis, specifying which execution venues are used for each type of financial instrument and SFT;

3. (3)

   appropriate information about the management company and the entities chosen for execution;

4. (4)

   a list of the factors used to select an execution venue which:

   1. (a)

      includes:

      1. (i)

         qualitative factors such as clearing schemes, circuit breakers, scheduled actions, or any other relevant consideration; and

      2. (ii)

         the relative importance of each factor; and

   2. (b)

      is consistent with the controls used by the management company to demonstrate that best execution has been achieved on a consistent basis, when reviewing the adequacy of its policy and arrangements;

5. (5)

   how the execution factors of price, costs, speed, likelihood of execution and any other relevant factors are considered as part of all sufficient steps to obtain the best possible result for the scheme;

6. (6)

   where applicable:

   1. (a)

      confirmation that the management company executes orders outside a trading venue;

   2. (b)

      the consequences of this, for example counterparty risk arising from execution outside a trading venue; and

   3. (c)

      a statement that additional information about the consequences of this means of execution is available on request; and

7. (7)

   a summary of:

   1. (a)

      the selection process for execution venues;

   2. (b)

      the execution strategies employed;

   3. (c)

      the procedures and process used to analyse the quality of execution obtained; and

   4. (d)

      how the management company monitors and verifies that the best possible results were obtained for the schemes it manages.

A management company must make the information in COBS 11.2B.31R available to unitholders or potential unitholders:

1. (1)

   in a durable medium; or

2. (2)

   by means of a website (where that does not constitute a durable medium) provided that the website conditions are satisfied; or

3. (3)

   in the prospectus of the scheme.

1. (1)

   A management company must make information available about the inducements that the management company may receive from execution venues in accordance with COBS 2.3 and COBS 18 Annex 1.

2. (2)

   The information in (1) must at least:

   1. (a)

      specify the fees charged by the management company to all counterparties involved in the transaction; and

   2. (b)

      where the fees vary depending on the scheme, indicate the maximum fees or range of the fees that may be payable.

3. (3)

   Where a management company applies different fees depending on the execution venue, a management company must explain these differences in sufficient detail to allow unitholders to understand the advantages and the disadvantages of the choice of a particular execution venue.

4. (4)

   Where a management company charges more than one participant in a transaction, the firm must make information available about the value of any monetary or non-monetary benefits received by the firm, in compliance with COBS 2.3.1R.

5. (5)

   Where a unitholder makes a reasonable and proportionate request to a management company for information about its policies or arrangements and how they are reviewed, that management company must answer clearly and within a reasonable time.

1. (1)

   Where a management company executes scheme orders or selects other firms to provide order execution services, it must summarise and make public, on an annual basis, for each type of financial instrument:

   1. (a)

      the top five execution venues or investment firms where it transmitted or placed orders for execution in terms of trading volumes in the preceding year; and

   2. (b)

      information on the quality of execution obtained.

2. (2)

   The information must be consistent with the information published in accordance with COBS 11 Annex 1EU (Regulatory technical standard 28) (which applies as rules in accordance with COBS 18.5B.2R).

Upon reasonable request from a unitholder or potential unitholder, a management company must provide information about entities where orders are transmitted or placed for execution.