Our clients’ interests are central to Havelock London’s values. This document sets out a summary of how we ensure the best outcome for our clients both when executing orders and when transmitting orders to third parties for execution.
Our best execution policy applies only to the execution or transmission of client orders in financial instruments, as defined in MiFID II, except where noted otherwise. These orders only arise from Havelock London’s discretionary portfolio management services, which are only provided to professional clients. We do not provide services to retail clients, execute client orders, or trade on our own account. For the avoidance of doubt, we do not perform any algorithmic or high-frequency trading ourselves.
Havelock London has assessed the relative importance of various execution factors for its orders, including those defined in FCA rules such as price, cost (to the client), speed, likelihood of execution and settlement, size, liquidity and other relevant considerations.
Havelock London’s trading activity is predominately in developed market securities with high levels of liquidity. In normal market conditions the highest priority factor is to obtain the best result for the client in terms of the total consideration for the trade, defined as the total price obtained minus any costs or fees. Given that our order sizes are ordinarily well within the liquidity available at official trading venues, the size of direct commissions are expected to form the main source of variance in the total cost of a trade. Where orders were in less liquid securities, or the order represented a high proportion of the daily volume, other execution factors such as size, speed and likelihood of execution are increased in priority.
Where we consider that we can take steps to reduce the costs of execution, and therefore improve the total consideration for the trade as defined above, then we will do so. Examples of this would include reducing the implicit costs of execution by reducing the market impact, which might be achieved by trading over a longer period. The other execution factors – listed previously – do not typically determine the way a trade is executed, although on occasion where there are specific relevant circumstances these factors may be escalated in prioritisation.
Reliance on a single broker
Havelock London may rely on a single broker for indirect execution of some instrument types. Given that we trade in liquid, publicly-traded equities and that the order sizes will be significantly below the liquidity available at official trading venues, we expect direct commissions to be the main cost and source of variation in the ‘total cost’ execution factor. Further, given that our strategy results in a relatively low volume of trading, splitting this volume between brokers may harm our ability to negotiate favourable commission terms.
When relying on a single broker, we shall conduct a competition and appropriate due diligence with several brokers and select a broker accordingly. We shall switch brokers or engage additional brokers if it is found that execution quality can be improved.
Direct & indirect execution
Direct execution includes situations where orders are traded directly with counterparties or directly with execution venues, without going through a broker. Indirect execution occurs when an order is transmitted to a broker, who is then responsible for execution. Havelock London shall use both indirect and direct execution. When executing orders directly with a counterparty or venue without going through a broker, we assess and determine which counterparties and venues we judge to be most likely to be able to deliver the best result for the client in line with our prioritisation of the execution factors.
Equities and exchange traded products
We trade in equity instruments and exchange traded products that are typically from developed markets and highly liquid. We apply our standard prioritisation of execution factors and transmission arrangements to these trades. These orders are executed via a broker and we will typically execute orders according to one of their predefined algorithms. Examples of this are volume-weighted average price (VWAP) or time-weighted average price (TWAP) algorithms. The use of these algorithms results in lower dealing commissions than when orders are routed to the broker’s manual execution service, and so form part of our approach to reducing the overall cost of each order.
We trade in debt instruments which are typically highly liquid government bonds including those of short maturities. We apply our standard prioritisation of execution factors and transmission arrangements to these trades as described above. These orders are executed directly with counterparties but may also be sent to an MTF.
We trade in currency derivatives, typically for hedging purposes. We apply our standard prioritisation of execution factors and transmission arrangements to these trades as described above. These orders are executed directly with counterparties but may also be sent to an MTF.
We undertake spot FX transactions and orders in non-EEA equities, both of which fall outside the scope of MiFID II. We nevertheless endeavour to obtain the best result for our clients. We treat non-EEA equities identically to EEA equities, as above, where possible.
Senior management oversight of the Best Execution policy, the associated trading arrangements and first/second line monitoring is provided by the Executive Committee. The Executive Committee is responsible for ensuring our internal policies and procedures deliver best execution, including: annual reviews and updates to this policy, where necessary; monitoring of brokers, counterparties and execution venues; and as an escalation point for any deficiencies in these procedures. The Committee is formally defined by its Terms of Reference.
The ongoing monitoring of execution quality and ‘first line’ controls are undertaken by our Investment Management team. Longer term monitoring of the quality of execution is undertaken on a quarterly basis by the Investment Team and independently reviewed by the Compliance Officer. This monitoring considers all operations to which best execution obligations apply.
In selecting a broker, we consider a broad number of factors for several candidates. The broker’s own execution policies and regulatory disclosures shall also be reviewed. Potential conflicts of interest shall be considered and – for the avoidance of doubt – the quality and volume of research produced by brokers will not be a factor in broker selection. The periodic monitoring of execution quality also encompasses monitoring of the individual performance of brokers and counterparties. On an annual basis the latest disclosures made by each broker under RTS 28 will be reviewed by the Executive Committee.
Disclosure of appropriate information to clients
Havelock London’s clients are professional clients, and we consider that a copy of this policy – or an appropriate summary – is an appropriate means to disclose our order execution policy. Note that in the case of funds, this information is provided to the fund’s management company. Investors in the fund may be provided with different information in the prospectus. It may be appropriate to share this policy with professional end-investors on a case-by-case basis, for example for a large institutional investor.
Havelock London is required under RTS 28 to make an annual disclosure of the top five execution venues where orders were executed, broken down for each class of financial instrument traded. An equivalent disclosure of the top five brokers is also required under COBS 11.2A.34 EU (6) for indirect trades. Where both direct and indirect execution takes place, these reports must be made separately.
Since we execute orders directly and indirectly, we will make two sets of RTS 28 disclosures.