Order execution policy

Outline for order execution policy

This Order Execution Policy, which includes the Allocation Policy, applies to Epworth Investment Management Limited (EIM). It covers all transactions and all financial instruments executed on behalf of EIM’s clients. Specifically, this includes the execution of orders on clients’ behalf (where EIM acts a discretionary fund manager) and receiving and transmitting client orders. It excludes orders for mandates delegated to third parties, in which circumstances the third party’s order execution policy will apply. Where clients are referred to in this Policy, they are deemed to include funds managed by EIM.

EIM is required to establish and implement effective arrangements for complying with the obligation to take all sufficient steps to obtain the best possible result for EIM clients when executing orders and when placing orders with third parties for Execution. From January 3rd, 2018 EIM will transact all market orders via a third-party provider, Northern Trust (NT). NT will be responsible for obtaining Best Execution on EIMs order flow and will be providing Best Execution monitoring data on a monthly basis. With the exception of the counterparties to the Affirmative Deposit Fund for Charities, NT will be EIMs only counterparty. A link to a copy of NTs Order Execution policy can be found at https://www.northerntrust.com/documents/legal/mifid/nt-order-execution-policy.pdf

Introduction

The objective of this Policy is to establish, implement, monitor and review the portfolio management activities of EIM to ensure the best possible result for clients. This Policy discloses our portfolio management policies, procedures and controls in accordance with the regulations and the requirements of Directives such as the Markets in Financial Instruments Directive (‘MiFID’) and the Alternative Investment Fund Management Directive (‘AIFMD’). This Policy will be reviewed annually. This Policy sets out the standards required under MiFID II. Where a firm undertakes the business of both Managing an AIF under AIFMD and the MiFID Investment Service of Portfolio Management, the firm may decide to adopt a different (AIFMD-compliant) Order Execution Policy for its AFM activities from that it adopts for its MiFID Portfolio Management business.

Best Execution Obligation

Alternative Investment Fund Managers (AIFMs) authorised under the AIFMD, when undertaking the MiFID Investment Service of Portfolio Management, are required to act in accordance with the best interests of its client when placing orders with other entities for execution that result from decisions by the firm to deal in financial instruments, on behalf of its client. This, in turn, requires firms to take all sufficient steps to obtain the best possible result for their clients when placing orders with other entities for execution that result from decisions by the firm to deal in financial instruments on behalf of its client, taking into account the Execution Factors of:

  1. Price
  2. Costs
  3. Speed
  4. Likelihood of execution and settlement
  5. Size
  6. Value
  7. Type and Characteristics of the financial instrument
  8. Any other factor relevant to the execution of the order.

The relative importance of these Execution Factors is to be determined by reference to the Execution Criteria.

The Execution Criteria

The Execution Criteria is as follows:

  1. the characteristics of the client, including the categorisation of the client as retail or professional;
  2. the characteristics of the client order;
  3. the characteristics of financial instruments that are the subject of that order;
  4. the characteristics of the execution venues to which that order can be directed.

Scope

Where the Firm’s client is a professional client, in general EIM would expect price to be the most significant factor in the execution of transactions unless instructed otherwise by the client. However, there may be circumstances where depending on the nature of the transaction other factors should be prioritised over price. Where the EIM owes a professional client a duty of best execution and they provide us with specific instructions in relation to the entire transaction, or any particular aspect of the transaction, which the EIM accepts, then EIM will execute the transaction in accordance with those instructions and in doing so have satisfied our best execution obligations. Where such a professional client’s instructions relate to only part of the transaction, the remaining element not covered by their instructions will remain subject to Best Execution requirements.

Where the Firm’s client is a Retail client, then EIM must determine the best possible result in terms of the total consideration, representing the price of the financial instrument and the costs relating to execution, which shall include all expenses incurred by the client directly relating to the execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order.

Types of Financial Instruments

Reference Page 13 (Order Types and scenario Analysis) Northern Trust Order Execution Policy.

From January 2018, all EIM transactions will be executed through Northern Trust (NT). NT will thus become the only counterparty of EIM with the exception of the Affirmative Deposit Fund approved deposit takers which are listed below which maybe transacted though the Money Market Brokers.

Orders generated will be transmitted to NT via a Bloomberg Terminal, either via the TSOX (Trading Systems Order Exchange) or ESMX (Execution Management System Exchange); the type of Bloomberg exchange used is determined by the asset class of the order.

Once the order has been transmitted to NT, EIMs designated Sales Traders will transact the order in line with best execution parameters. An execution report will be issued once the order has been completed.

General Principles

EIM has established and implemented procedures and arrangements in respect of all the client orders which provide for the prompt, fair and expeditious execution (i) of all client orders, relative to other orders; and (ii) of portfolio transactions on behalf of the funds managed. EIMs order execution policy ensures that when carrying out client orders (including portfolio transactions on behalf of the funds managed):

  • Orders executed on behalf of clients are promptly and accurately recorded and allocated; and;
  • Otherwise comparable orders are carried out sequentially and promptly unless the characteristics of the order or prevailing market conditions make this impracticable, or the interests of the client require otherwise.

EIM has systems in place to ensure that when orders are executed for clients, including the funds managed by EIM, any client financial instrument or client funds received in settlement of that executed order are promptly and correctly delivered to the account of the appropriate client. Lastly EIM has in place internal rules and procedures aimed at preventing the misuse of information relating to client order.

In House Managed Funds

EIM will execute creation or redemption of units on the instructions of the client at the published bid / offer prices at the valuation points relevant on the dealing days when available.

Abnormal Market Conditions

This Policy may not apply at a time of severe market turbulence, and / or internal or external system failure where instead the ability to execute the order on a timely basis, or at all, will become the primary factor.

Affirmative Deposit Fund For Charities Counterparty Review Process

The counterparty list (lending limit list) is reviewed twice a year by the Epworth Board.  The review process takes into account banks’ size, credit ratings and financial strength.  If bank credit strength deteriorates between reviews, the Fund Manager automatically reduces counterparty limits.  If bank credit strength improves, then increases to counterparty limits must wait until the next Epworth Board review to be implemented.

List of approved deposit takers which are subject to change on a 6 monthly review process:-

  • ANZ Banking Group
  • Bank of Montreal
  • Bank of New York Mellon
  • Bank of Nova Scotia
  • Bank of Scotland
  • Bank of Tokyo – Mitsubishi UFJ Limited
  • Barclays Bank plc
  • BNP Paribas
  • Canadian Imperial Bank of Commence
  • Commonwealth Bank Group
  • Credit Agricole
  • Credit Agricole CIB
  • Credit Industriel et Commercial
  • Credit Suisse
  • Danske Bank
  • DBS Bank
  • Deutche Bank
  • DnB NOR Bank
  • DZ Bank
  • HSBC Bank plc
  • ING Bank
  • ING Group
  • JP Morgan Chase & Co
  • JP Morgan Chase Bank
  • KBC Bank
  • Landesbank Baden- Wurttemberg
  • Landesbank Hessen-Thurungen
  • Lloyds Bank plc
  • Lloyds Banking Group plc
  • Mitsubishi UFJ Trust and Banking Corporation
  • Mizuho Bank Limited
  • Mizuho Financial Group
  • National Australia Bank
  • Nationwide Building Society
  • Nordea Bank
  • Rabobank Nederland
  • Royal Bank of Canda
  • Royal Bank of Scotland plc
  • Santander UK plc
  • SEBanken
  • Shinhan Bank
  • Societe Generale
  • Standard Chartered Bank
  • State Street Bank and Trust
  • State Street Corp
  • Sumitomo Mitsui Banking Corporation
  • Svenska Handlesbanken
  • Toronto Dominion Bank
  • Union Bank of Switzerland
  • Wells Fargo & Co
  • Wells Fargo Bank
  • Wespac Banking Corporation

Execution Factors

Reference Page 5 (3. Execution Factors) Northern Trust Order Execution Policy.

Specific Instructions

Where a specific client instruction is received in respect of an order, EIM will communicate the instructions to Northern Trust or the relevant Affirmative Deposit Fund deposit takers. In doing so, EIM will have been deemed to fulfil its Best Execution obligation. Where instructions relate to only part of an order, EIM will communicate this to NT in accordance with this Policy to those aspects of the order not covered by the specific instruction. It should be noted that following specific client instructions those instructions may prevent achievement of the best possible result of the execution of those orders.

Monitoring of policy and arrangements, and review process

EIM monitors the effectiveness of its execution arrangements and this Policy in order to identify any deficiencies. This Policy will be reviewed no less than annually.

Best Execution monitoring will be determined via Bloomberg BTCA (Bloomberg Transaction Cost Analysis) platform via Northern Trust (NT). On a monthly basis, NT will deliver Best Execution monitoring data with root cause analysis attached. This will provide the basis on which EIM will determine its Best Execution quality.

Regulatory Technical Standards (RTS) 28 requirements will be satisfied via data provided from NT. The data will be published on EIMs website in the correct format in line with MiFID II requirements and timescale.

Identification and management of conflicts of interest

EIM maintains organisational arrangements that identify conflicts and potential conflicts of interest that exist within the Firm and the procedures and controls that have been adopted to manage these conflicts. These arrangements are subject to review and approval by the Compliance Officer. Individual employees are permitted to trade securities for their own accounts, in which case, the individual must follow the procedures, which are designed to prevent individuals from engaging in personal transactions that may compete or interfere materially with the trading of client accounts. It requires individual employees to report their personal securities transactions to the Compliance Officer for review. (Reference: Personal Account Dealing Policy).

Furthermore, individuals are required to:

  • Seek prior approval to any personal trade
  • Receive approval prior to any personal trading
  • Provide copies of contract notes to the Compliance Officer.

An area where a conflict of interest potentially arises is in the placing of orders for multiple clients and the subsequent fair allocation of trades. With reference to the Order Allocation Policy, the risk of unfair treatment is minimised by the procedures employed by EIM’s fund managers and the communication to NT. The allocation of executed trades when completed in full is allocated to participating clients without delay unless there is significant reason for not doing so.

Aggregation of Orders

EIM will carry out a client order in aggregation with another client order when EIM is satisfied that each client is treated fairly and to do so would not disadvantage either client. Aggregated orders will be allocated in accordance with EIM’s Order Allocation Policy.

Order Allocation Policy

For orders across multiple funds where there is a partial execution, allocation is always made on a pro rata basis (with respect to the orders placed, not the size of the relevant funds). However, if that results in a holding which, in the relevant fund managers opinion, is too small to be suitable (for example, it is below minimum market size or would incur disproportionate costs to the client) then the relevant fund may be excluded from the allocation. The basis of that re-allocation is recorded within our order management system.

Senior Management Oversight

Under MiFID II, Article 27 (4) and (7), EIM has an obligation to monitor the effectiveness of its order execution arrangements and its Policy, including the execution quality of its transactions.

To assist the review process, EIM has put in place the necessary processes aimed at meeting this obligation. This may include the following:

  • A Monthly Best Execution monitoring working group with NT, to include outlier monitoring and root cause analysis with narrative;
  • Performance monitoring – The Compliance Officer will ensure NT meets EIMs Best Execution requirements, the results of which will be highlighted at Epworth Board meetings;
  • This Policy will be reviewed annually and Epworth Board approval sought.