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About Us

Policy Name: Order Execution Policy

 

1. Introduction

Sanlam FOUR Investments UK Limited (FRN 459237) and Sanlam Private Investments (UK) Ltd (FRN 122588) (together “Sanlam”) manages portfolios of investments on a discretionary basis for investment funds and managed account clients (“clients”). Sanlam is authorised and regulated in the United Kingdom by the Financial Conduct Authority to undertake regulated investment business.

This document outlines the Order Execution Policy (“the Policy”) for executing a client order as required by the Financial Conduct Authority (FCA) Conduct of Business sourcebook (COBS 11.2) and as stipulated by the EU Markets in Financial Instruments Directive (‘MiFID II”) and EU Markets in Financial Instruments Regulation (“MiFIR”).

We will take all sufficient steps to obtain the best possible result for our clients by abiding by this policy when executing orders, or receiving and transmitting orders to other entities for execution.

Aside from the explicit best execution rules explained in this policy, we have an overriding duty to act honestly, fairly and professionally in accordance with the best interests of our clients at all times.

2. Scope

Our Order Execution Policy applies to the execution of client orders by Sanlam on behalf of Retail and Professional Clients for the following classes of financial instruments: Equities, Derivatives (both Exchange-traded and OTC), Units/Shares in Collective Investment Schemes, Fixed Income Instruments, Money market and cash instruments, as well as any other financial instruments in which we may execute orders from time to time.

Sanlam will always execute client orders as Agent, which we pass on (i.e. transmit) at our discretion to another broker or dealer (‘Third Party’) for execution. However, in the cases where a client gives a specific instruction to Sanlam, this policy will not be applicable for the specified instructions of the client order. The remaining elements of the order, though, will remain subject to best execution requirements.

3. Client Orders

These may result from:

• A decision by us to deal on behalf of a discretionary client;
• A client instruction to deal, following advice or a recommendation from us; or
• A client instruction to deal on an ‘execution only’ basis

Where we are appointed Discretionary Manager the timing of transmitting orders will be at our discretion. Where we are acting on an instruction from a client, the order will be transmitted as soon as practicably possible following receipt of the instruction.

4. Execution Factors

There are two methods that Sanlam use when executing trades on behalf of its clients and the Funds it manages:

  • Transmission - where Sanlam places an order with another entity for it to execute on behalf of the client (e.g. a broker or investment bank). In these instances, Article 24 of MiFID II and Article 65 of the Delegated Regulation will apply. In such scenarios, while we will owe our client a duty of Best Execution, we will also receive a duty of best execution from the third party. We select brokers that we are satisfied provide “Best Execution” in accordance with MiFID II and FCA regulations and we have established and implemented order execution arrangements that enable us to obtain on a consistent basis the best possible result for our own clients.
  • Execution - where Sanlam executes an order directly against an execution venue (e.g. a regulated market, Multilateral Trading Facility (MTF), Organised Trading Facility (OTF) or Systematic Internaliser (SI), including Request For Quote (RFQ), use of MarketAxess etc.) or a market maker or other liquidity provider. In these instances Article 27 of MiFID II, Article 64 & 66 of the Delegated Regulation will apply. When Sanlam executes a transaction against an execution venue (or market maker or other liquidity provider) we will not receive a duty of best execution from the venue, but we will owe a duty of best execution to our client. As such, we will take ‘all sufficient steps’ to obtain the best possible result for our client.

Subject to any specific instructions received, Sanlam will take the following execution factors into consideration in determining how to obtain the best possible result for the order, namely:

  • Price paid for the investment
  • Costs incurred as a result of the transaction being placed (including clearing and settlement costs)
  • Speed of the execution and settlement
  • Likelihood of the order being executed and settled
  • Liquidity in the instrument being traded
  • Size and nature of the transaction
  • Nature of the financial instrument including whether it is executed on a regulated market, multilateral trading facility (MTF), Organised trading facility (OTF) , over-the-counter (OTC) or with a Systematic Internaliser (SI)
  • Any other consideration relevant to the execution of the order

In determining the relevant importance of each of the above factors when executing an order, we will use our commercial judgement, experience in light of current market information as well as the following criteria (as defined in COBS 11.2.6):

  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 and
  5. For UCITS schemes, the objectives, investment policy and risks specific to the scheme, as indicated in its prospectus or instrument constituting the fund.

The total consideration of the trade (i.e. the price of the financial instrument and the costs related to execution) will be our primary focus for the majority of transactions, although in some circumstances we may determine that other execution factors are more important in obtaining the best possible execution result for our clients.

5. Execution venues

An execution venue is the term used to describe a place where a client order is executed and includes Regulated Markets, Multi-lateral Trading Facilities (MTF), Organised Trading Facilities (OTF) Systematic Internalisers (SI) and market makers or any other liquidity providers.

Sanlam may transmit a client order to, or place a client order with, another firm for execution. The other firm may be connected to or affiliated with Sanlam. In choosing the other firm, Sanlam has taken into consideration the following factors relating to that other firm:

  • Access to alternative markets and trading venues;
  • Adequate coverage to asset classes globally
  • Commission rates and prices/spreads provided;
  • Execution speed/latency;
  • Quality of execution and service, both historical and current;
  • Clearing and settlement efficiency and capabilities;
  • Risk profile and creditworthiness; and
  • Regulatory status and reputation

A list of Execution Venues (in respect of each class of Financial Instruments) and all Brokers that we use for execution is available on request, however, we reserve the right to change the Execution Venues and Brokers we use from time to time, as we deem appropriate subject to our internal authorisation process and this Policy.

We seek your express consent to execute your orders outside a Regulated Market, MTF or OTF when we believe this is the best method of obtaining best execution – please see our ’Terms of Business’.

6. Broker Approval Process

Sanlam has a process for the selection of counterparties and brokers, with whom it executes client orders or transmits client orders to for execution.

In order to minimise the risk of potential conflicts of interests, Sanlam does not receive any form of remuneration, discount or non-monetary benefit for directing orders to a particular venue or broker for execution. The selection of a broker for an order is driven solely by the factors and inputs as described in Section 6 of this Policy.

7. Monitoring of approved brokers

All Brokers are reviewed / assessed on an on-going basis against mentioned above factors (see Section 6) in accordance with our obligation to provide the client with the best possible execution results on a consistent basis. Also, as part of this process brokers are regularly screened for negative media and potential sanctions, which may also include licence suspensions, disciplinary actions, and reputational issues. The screening is performed by the Compliance Financial Crime team and escalated to the Dealing Oversight Committee, which in conjunction with the Financial Crime team will determine the risk to Sanlam and its clients and the potential removal from the Approved List.

We also undertake an annual review of all brokers utilised by Sanlam. This includes assessments of execution quality, service delivery, regulatory status and the financial standing of the firm.

8. Quality of Execution

Sanlam’s Dealing Oversight Committee (DOC), together with the Operations and Compliance teams monitor the execution quality provided by Sanlam’s approved brokers. The DOC is comprised of senior management members, i.e. Portfolio Management, Settlements, Trading, Risk and Compliance. The DOC oversees the brokerage allocation process using Transaction Cost Analysis tools.

Our methodology for achieving best execution for each financial instrument is outlined in Appendix 1.

9. Limit Orders under Client instruction

Limit orders are specific instructions received from the client to deal on their behalf where the client places a ‘limit’ on the price for execution. If an order has been placed with us with a ‘limit’ on the price for execution, we may not be able to execute it immediately. Consequently, in accordance with regulatory requirements and unless otherwise specifically instructed, we will publicly disclose details of any unexecuted part of such ‘limit’ order. However, with client consent, we can exercise discretion as to how and when unexecuted limit orders are shown to the market. We believe that this allows us to achieve the best possible result for our clients. We therefore seek your express consent on this matter – please see our ’Terms of Business’. In the absence of an explicit response from you in relation to this information, if you place an order with us we will treat you as having provided us with consent not to publish any unexecuted limit orders, as we believe it is in your best interest for us to do so.

10. Order Management and Aggregation

Sanlam will take all sufficient steps to obtain the best possible execution result for its clients. For all client orders, we will consider the different execution factors in the context of the clients’ instructions in order for us to form a suitable execution strategy.

Where practical, Sanlam will look to aggregate purchase or sell orders for the same security or other instrument for multiple accounts so that the clients may be able to benefit from the better prices achieved through larger, bulk transactions in line with our obligation to treat customers fairly. Sanlam aggregates order when it considers doing so appropriate and in the interest of its clients generally and may elect block trade treatment, when available, as prescribed by the FCA in COBS 11.3.7

Although it may do so in certain circumstances, Sanlam does not always aggregate orders for different accounts, if the portfolio management decisions relating to the orders are made by separate portfolio management teams, if aggregating is not appropriate or practicable from Sanlam’s operational or other perspective or if doing so would not be appropriate in light with applicable regulatory considerations.

The executed orders are allocated to clients fairly and proportionately in accordance with Sanlam’s Trade Aggregation and Allocation policy.

Should there be an opportunity to cross stock between Sanlam managed funds, and where a market quote is available, the stocks will be crossed in the market at generally mid-point/market price within VWAP/TWAP range to demonstrate best execution. This will save our clients from transaction costs i.e. incurring broker commissions, fees or charges and reduce market risk by reducing market exposure.

11. Order Placement - Sanlam FOUR Investments UK Limited

Due to the way we conduct our business and in order to enhance the quality and efficiency of record keeping during the order execution process, we will communicate with our Brokers and place orders electronically via an execution management system or secure audited instant messaging (through Bloomberg) only.

12. Review of Sanlam’s Execution Policy

Sanlam reviews this execution policy annually, as well as whenever there is a material change that affects its ability to continue to obtain the best possible result for the execution of orders on a consistent basis.

Appendix 1- Execution Methodology for Financial Instruments

A. Equities

As mentioned in Section 4, there may be various reasons for executing equities orders undertaken as part of a number of possible contractual relationships with a client, namely discretionary, advisory or execution-only. In order to meet these distinct needs, we will investigate and consider a number of execution strategies, trading entities and venues in order to facilitate the most appropriate choice. The execution factors considered for Equities are as follow:

I. Execution Factors in order of importance

a) Price and liquidity – as a general rule, we will try to identify venues/brokers which are sources of natural liquidity before entering an order into the market; deep liquidity is likely to provide material opportunities which may take the form of a better price and the ability to trade significant additional size at a similar price.

b) Speed and likelihood of execution – this is the rate at which we are able to progress your order; we will seek a balance between creating market, and thereby potentially moving the price, and executing your order in a timely manner so as to reduce execution risk.

c) Size and nature of the order – when we have large single stock orders to transact, we might use MTFs to try to find a block-size match for our business that will prevent an adverse market impact for the traded stock.

We use the following methodology when defining the size of the order:

  • Small <10% ADV (Average Daily Volume). Often traded via algorithmic trading
  • Medium 10-25% ADV. Depending on liquidity/ urgency we may consider using algorithmic trading
  • Large. >25% ADV. Will usually require >1 day to trade. Algorithmic trading used less frequently. We may consider trying to source a block execution if trade is urgent. If algorithmic trading is used it make take several days to complete the order. We may choose to use an algorithm whilst a block execution is being sought.

d) Costs – we believe that one of the steps to achieve best execution is equity markets is to negotiate the lowest possible terms for the explicit cost of trading (such as commissions) and minimise the implicit costs (such as market impact and opportunity cost).

e) Likelihood of settlement – our approved broker selection process as described in Section 7 helps us mitigate the credit and settlement risk we may face. We will generally not use an execution venue/broker if we cannot either settle a transaction or resolve failed settlements

For orders in Investment Trusts the execution factors are as follows below.

II. Execution Factors in order of importance

a) Price and Cost - Price achieved, specifically total consideration, will be our primary focus for the majority of transactions, whether we are acting for retail or professional clients

b) Likelihood of execution

Our strategies may also depend on the underlying assets held within the fund, in particular the liquidity, as well as whether we are trading in an open-ended or closed-ended fund.

The execution factors order of importance might slightly vary depending on the stocks if they are highly liquid or less liquid.

III. Algorithmic trading

Sanlam uses algorithmic trading primarily for orders that do not require a manual execution service from our brokers. Such decisions are usually justified for trading in an instrument with a high volume and liquidity. Algorithmic trading can be more cost effective due to lower commission rates and in order to reduce the potential impact of an order on the market price of the instrument.

We utilise broker-supplied algorithms. The selection of brokers and their offered algorithms is based on previous execution performance and the transparency of their order handling process.

B. Fixed Income (FI)

This policy covers fixed income instruments held on a regulated market or multi-lateral trading facility, organised trading facility, over-the-counter (OTC) fixed income securities, asset-backed credit products and any other credit products and money instruments. Due to the large variance in liquidity across fixed income a lot of the FI trades are executed OTC, on a MTF or OTF (as of January 3rd 2018) or with a Systematic Internaliser (SI).

As mentioned in Section 4, there may be various reasons for executing FI orders undertaken as part of a number of possible contractual relationships with a client, namely discretionary, advisory or execution-only. In order to meet these distinct needs, we will consider a number of execution strategies, trading venues and entities in order to facilitate the most appropriate choice taking into consideration the specifics of the fixed income security. The execution factors considered for Fixed Income are as follow below.

I. Execution Factors in order of importance

a) Likelihood of execution and settlement – unlike equity markets, there is seldom a continuous two-way market of buyers and sellers whereby a minor change in price by one or the other can result in a trade. Due to the large variance in liquidity across FI, likelihood of execution is usually the most important execution factor. There is also a risk that the counterparty with which Sanlam trades FI over-the-counter might default and fail to meet its transactional obligations to pay us. Sanlam will trade on a MTF and/or with a SI in order to mitigate this risk

b) Size and nature of order - we will often trade incrementally or be conservative with the number of brokers we contact in order to reduce the likelihood of moving the price significantly

c) Price - price achieved is always in our focus but the less liquid nature of trading fixed income, often off-exchange, means we will normally take a more strategic approach in order to achieve best execution

d) Costs - within the FI space, execution costs are almost entirely standardised and are typically included in the price as a bid/offer spread, so the costs factor is considered to be a lower priority

Price discovery is one of the most challenging aspects of trading FI. Generally, it is preferable to use MTFs because these venues provide a better price discovery function. However, the use of MTFs might not be appropriate for transactions above a certain size because the exposure of the trade data may adversely affect the market price and prevent Sanlam from obtaining the best result available in the transaction. Sanlam will consider whether multiple quotes can or should be obtained depending on the security type, the security to be traded, the size of the transaction and the prevailing market conditions. However, the new transparency rules under MiFID II and MiFIR will contribute to the greater transparency of the FI markets, which will allow us to benchmark our brokers and monitor their quality of execution.

C. Exchange-traded funds (ETFs)

As mentioned in Section 4, there may be various reasons for executing ETF orders undertaken as part of a number of possible contractual relationships with a client, namely discretionary, advisory or execution-only. In order to meet these distinct needs, we will investigate and consider a number of execution strategies, trading venues and entities in order to facilitate the most appropriate choice. The execution factors considered for ETFs are as follow below.

I. Execution Factors in order of importance

a) Price – the price achieved will be our primary focus for the majority of transactions given that the ETFs we typically deal with are highly liquid

b) Size – depending on the size of the order, we might decide to execute at a venue where likelihood of moving the price significantly is minimised

c) Speed and likelihood of execution – this is the rate at which we are able to progress your order; we will seek a balance between creating market, and thereby potentially moving the price, and executing your order in a timely manner so as to reduce execution risk

d) Cost - we believe that one of the steps to achieve best execution in ETFs is to negotiate the lowest possible terms for the explicit cost of trading (such as commissions) and minimise the implicit costs (such as market impact and opportunity cost)

We tend to place orders predominantly in highly liquid and vanilla ETFs and trade exclusively on exchanges. Sanlam uses a small number of selected brokers, chosen for their experience in ETFs and we do not typically split an order between brokers due to the good underlying liquidity.

D. Units/Shares in Collective Investment Schemes

This policy covers Units/Shares in Collective Investment Undertakings for both open-ended and closed-ended funds, e.g. Unit Trusts, OEICs and Investment Trusts. As mentioned in Section 4, there may be various reasons for executing Units in Collective Schemes orders undertaken as part of a number of possible contractual relationships with a client, namely discretionary, advisory or execution-only. In order to meet these distinct needs, we will investigate and consider a number of execution strategies, trading venues and entities in order to facilitate the most appropriate choice.

For orders in collective investment schemes (e.g. Unit Trusts, OEICs) we will place the order directly with the relevant fund manager/platform provider and/or the operator of the collective investment scheme.

E. Foreign Exchange (FX)

Sanlam trades deliverable Spot contracts which are not financial instruments within the scope of MiFID II and therefore Best Execution requirements will not apply to stand-alone spot FX transactions.

We also trade forward FX for stock hedging purposes.

F. Exchange-Traded Derivatives (ETDs)

Where we trade in Exchange-Traded Derivatives we will execute the order on the regulated market on which the instrument is listed. Currently there are no alternative markets or liquidity platforms for ETDs.

The execution factors considered for ETDs are as follow below.

I. Execution Factors in order of importance

a) Price – This is the resulting price of the transaction.

b) Speed – This is the rate at which we are able to progress your order; we will seek a balance between creating market, and thereby potentially moving the price, and executing your order in a timely manner so as to reduce execution risk.

c) Likelihood of execution and settlement – This is the likelihood that we are able to entirely fill your order.

d) Cost – This includes (but is not limited to) commissions rates, expenses, settlement, standardised market fees (direct or indirect), foreign exchange, taxes, and any other charges.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.