Order execution policy

Overview

CCLA Investment Management Ltd (CCLA IM) and CCLA Fund Managers Limited (CCLA FM) are authorised and regulated by the Financial Conduct Authority and registered and incorporated in the United Kingdom. CCLA IM provides investment management services and activities for all CCLA clients. CCLA FM is a wholly owned subsidiary undertaking of CCLA IM. CCLA FM, as an AIFM, has delegated the investment management function to CCLA IM.

As an investment manager CCLA IM makes the decisions to deal and subsequently either transmits or actually executes these decisions on behalf of clients. CCLA IM will, when executing orders (either directly with counterparties or passing orders to third party brokers for execution), take all sufficient steps to obtain the best possible result on behalf of its clients (‘best execution’). This Order Execution Policy sets out how CCLA IM will seek to achieve best execution. For the purposes of this policy, CCLA refers to CCLA Investment Management Limited.

This policy is intended to function as a guideline for ensuring best execution by the investment making teams within CCLA. It is not intended to be interpreted or applied in a rigid manner that unnecessarily restricts or limits CCLA’s ability to achieve the best result for clients in any given situation. Please note that although the procedures set out in this policy are generally expected to produce the best possible result for clients, there is no guarantee that circumstances will enable this to be achieved in every single transaction.

This policy is owned and overseen by the CCLA Investment Committee.

 

Scope

This policy applies in respect of financial instruments (as such terms are defined for the purposes of MiFID and the FCA Handbook) where CCLA executes orders directly with counterparties or transmits orders to third party brokers for execution. Therefore, throughout this Execution Policy, references to execution of orders should be interpreted as executing orders directly with counterparties or passing orders to third party brokers for execution. CCLA will be arranging deals for clients whether by way of (i) arranging and executing purchases or sales of listed securities, loans, bonds, or other instruments in the secondary market or (ii) arranging and executing participations in primary transactions, including new loan or bond financings. Execution of ancillary transactions such as the execution of foreign exchange or other derivative transactions (‘ancillary transactions’) shall also be covered by this policy. Some of these transactions may not be regarded as ‘financial instruments’ (for example loan agreements). However, in line with CCLA’s commitment to high regulatory standards, it will seek to apply equivalent compliance standards to all transactions as part of its best practices.

Client

CCLA’s clients consist of collective investment schemes and segregated mandates (‘clients’).

CCLA’s strategies and order types

Execution of orders by CCLA may take place in the context of the following transactions:

  • Liquid investments: orders are executed in relation to the purchase or sale of equities, loans, bonds, money market transactions, e.g., certificates of deposit and other liquid instruments generally in open market transactions with a broad number of regulated broker-dealers. 
  • Illiquid investments: orders are executed in relation to the primary participation or secondary purchase of loans, bonds or other instruments that are generally illiquid and/or not regularly traded in any market. Due to the illiquid nature of the financial instrument, there will be limited options available in relation to where and with whom we can deal.
  • Collective Investment Schemes: orders for collective investment schemes are generally executed through the relevant transfer agent (this includes money market funds). 
  • Ancillary transactions: orders are executed in relation to derivatives, particularly FX derivatives, and generally as part of a hedging policy to manage portfolio risk with approved counterparties.

Execution factors

When executing orders in relation to a financial instrument, CCLA will take sufficient steps to achieve best execution and to ensure CCLA clients are treated fairly. CCLA will exercise its discretion in assessing the factors that it needs to take into account (and their relative importance) to provide CCLA clients with best execution.

CCLA does not receive third-party payments or non-monetary benefits in relation to its selection of execution venue. CCLA may receive minor non-monetary benefits from brokers such as macro research which is not considered to be ‘research’ for the purposes of the FCA research payments rules. CCLA operates a separate policy of research and operates a fully unbundled approach to execution payments.

The relative importance of the execution factors will be judged on an order-by-order basis in line with CCLA’s commercial judgement and experience in light of current market information and taking into account:

  • the characteristics of the client
  • the characteristics of the transaction in question
  • the characteristics of the financial instrument(s) in question
  • the characteristics of the possible Execution Venues to which the order may be directed.

In many circumstances, the Execution Venue will be the counterparty to the trade. For liquid investments, CCLA maintains a list of approved Execution Venues that are included in Appendix A.

CCLA may take into account the following execution factors for market traded or OTC securities:

  • price (relative importance – generally high)
  • location of assets which are the subject of the deal (relative importance – generally medium)
  • location of professional support (relative importance – generally medium)
  • market impact (relative importance – generally high)
  • costs and tax issues (relative importance – generally high)
  • order size (relative importance – generally high)
  • certainty of execution (relative importance – generally high)
  • speed of execution (relative importance – generally high)
  • settlement (relative importance – generally high)
  • any other criteria relevant to the execution of the order.

CCLA may prioritise other factors at its discretion.

Due to the differences between CCLA’s strategies and the types of instruments in which CCLA transacts, different execution factors may apply to each strategy and/or instrument. 

In addition, the nature of CCLA’s business means that best execution will not necessarily be entirely dependent upon any one of the traditional execution factors (price, cost, speed, settlement, likelihood of execution, liquidity) nor upon execution venue. 

CCLA, therefore, applies its best execution obligations in a manner which takes into account the circumstances associated with the execution of orders in relation to the strategies and particular types of financial instruments in which CCLA deals, including:

  • credit fundamentals, investment thesis, risks, and mitigation factors
  • deal structure
  • likelihood of deal completion
  • capital structure
  • jurisdiction
  • financial analysis.

Bonds

Orders for bonds are generally placed on over the counter (OTC) markets. The OTC markets, which are characterised by proprietary trading transactions, are decentralised, fragmented, and may have low transparency, because the counterparties generally do not make the prices quoted available to a broad market. Rather, these prices are negotiated on a bilateral basis with the counterparties. The choice of counterparties for bonds is often limited. In many cases, as the products are only offered by a limited number of counterparties, there is not much transparency in terms of liquidity or price. In volatile non-transparent markets, it may be necessary to accept the first price offered without the opportunity to obtain or request other prices. Moreover, there may be bonds offered exclusively through one counterparty, or for which settlement of an order of a certain size can only be guaranteed by one counterparty, in which cases it is not possible to obtain a comparative offer.

Loans

Primary orders for loans are agreed and made directly with the counterparty (i.e., the borrower). Secondary orders for loans are generally placed with investment banks or other counterparties and are traded by such counterparties making markets for specific issues. If CCLA wishes to purchase a loan in a secondary trade it must contact the counterparty to agree a price. As a general rule, loans are less liquid and are traded less frequently than bonds and the choice of counterparties may be even more limited and the lack of market transparency even more marked. An order can be executed between two participants without others being aware of the price at which the transaction was affected.

Equities

The types of equity instruments in which CCLA invests will generally be traded on trading venues. In addition, equity instruments may be ancillary to a primary debt investment where a company issues an equity instrument in the same transaction where a debt investment has been made.

Money market transactions

After satisfying the fund’s primary and secondary objectives of security and liquidity respectively, price (or yield) will be the most important execution factor when making a choice between execution venues. Other factors including likelihood of settlement, diversification of issuer, and size of ticket will also be a consideration.

When purchasing a money market instrument CCLA aims to achieve the best price possible (i.e., highest yield) relative to other issuers of similar credit quality and for the same instrument type and period. To achieve this CCLA receives daily indications of issuer yields for different instruments and periods from a number of sources including brokers and directly from issuers. CCLA also maintains a sufficiently long list of approved issuers in order to ensure flexibility to deal with a number of potential issuers.

When selling Certificates of Deposit in the secondary market the same principles will apply although the best possible price will be the lowest yield and significant consideration will be given to market illiquidity.

Where CCLA transmits an order to an approved broker for execution it will look to use its experience in order to improve the terms on which it transacts in that market. CCLA looks to use the execution venue best placed to help the firm add value to any transactions. CCLA does not pay commission on its money market transactions to trading and execution venues.

Derivatives

Orders for derivatives are generally executed via trading intermediaries (broker-dealers). All derivatives must be traded under industry standard legal documentation. CCLA’s choice of counterparty for trading derivatives is limited to those counterparties where the required documentation is in place.

Given the nature of the particular financial instruments that CCLA deals in, some execution factors may not be applicable to the orders executed by CCLA.

Collective Investment Schemes

For orders to trade in Collective Investment Schemes (CIS), we will execute the order directly with the operator of the CIS. Deals will be submitted prior to the CIS operator’s dealing cut-off time and the order will be executed at the prevailing CIS net asset value.

When executing orders, in the absence of any specific instructions, CCLA will give precedence to the factors that allow it to deliver best execution in terms of total consideration, representing the price and the costs associated with the execution, which includes all expenses incurred by CCLA which are directly related to the execution of the order, including execution venue fees, clearing and settlement fees, and any other fees paid to third parties involved in executing an order. Price will ordinarily merit a high relative importance in obtaining the best possible result. However, in some circumstances, CCLA may appropriately determine that other execution factors are more important than price in obtaining best execution. In order to make any such determination, our front office staff will use their commercial judgement and experience in light of available market information to achieve the best balance across a range of sometimes conflicting factors. This does not necessarily mean achieving the best price for every order, but the best possible result that can reasonably be expected given the resources available to our front office staff. In determining the ‘price’ of a financial instrument, we will take into account a number of considerations including market parameters (i.e., the price at which a financial instrument may be trading on a regulated market or multilateral-trading facility (MTF)), level of market liquidity and volatility, valuation, and the risks incurred by entering into transactions.

Examples of specific scenarios where price may not be the most important execution factor are:

  • Certainty of execution: in some circumstances, CCLA’s ability to actually execute the order may be the primary factor to be considered, for example where the instrument is illiquid or rarely traded or the size of the order is very large.
  • Costs and tax issues: where charges, taxes or other settlement costs may make the consideration prohibitive, then this may be the most important factor for CCLA to consider.
  • Order size: The best price in a market is usually represented by the opportunity to trade in a particular size which may not match the size of the CCLA order. Where the order is bigger than the typical quoted size, then the part of the order executed over and above the threshold may only be available at a less favourable price. Similarly large orders may be available at a more favourable price than smaller orders.

Execution venues

When CCLA transacts directly with a counterparty, the counterparty is the execution venue for that trade. For more liquid investments, broker-dealers and other similar market participants are likely to be the relevant execution venue. 

Having assessed the relevant execution factors and relative importance of the execution factors specific to that order to achieve consistently the best overall result as well as any specific instructions, CCLA will select the most appropriate Execution Venue(s) from those available (when there is a choice) and execute the order accordingly.

For purposes of MIFID, a ‘venue’ includes an exchange, a multilateral-trading facility (MTF), organised trading facility (OTF), a broker, a market maker, a systematic internaliser or another liquidity provider. CCLA expects to use a selection of execution venues. Sometimes there is only one appropriate venue, and, in such cases, CCLA will only use a single venue. 

CCLA may execute otherwise than on a trading venue (regulated market, sterling money market or MTF or OTF) where bringing together the parties of a transaction in relation to a financial instrument which is not traded on a traditional execution venue, for example when arranging or participating in a primary lending transaction.

The factors affecting choice of execution venue are price, the need for timely execution, market liquidity, the size and nature of the order and counterparty risk. Our choice of venue may be constrained by the fact that there may be no choice of venue where an order can be executed due to the nature of the order or requirements by CCLA or due to the nature of the particular instrument (e.g., an illiquid loan is likely to have no choice of venue) and the fact of execution may itself constitute best execution.

Price

In the context of selecting execution venues, price refers to whether an execution venue generally offers prices that are as good as, or better than, its competitors. Price is therefore a relevant factor in selecting execution venues to execute orders.

Counterparty risk

While trading of bonds generally settle quickly, primary, or secondary settlements in respect of loans may be more extended, particularly if the asset is trading under distressed circumstances. In order to manage counterparty risk in respect of an execution venue, CCLA monitors and manages extended settlements through its weekly settlement update with a view to minimising, where possible, settlement time, thereby managing counterparty risk.

In addition, CCLA maintains a list of approved brokers or counterparties. CCLA undertakes appropriate due diligence of approved brokers to mitigate counterparty risk, with a particular focus on the following criteria: financial soundness; market presence; and no material adverse market information.

The execution venues typically used by CCLA will vary depending on the type and geographical location of the transaction.

Private market transactions

Execution of orders by CCLA on behalf of clients may take place in private market type transactions, including private equity, venture capital, loans, and real assets such as property. The execution of such a transaction is generally by way of signing a contract, by CCLA as agent of its client, directly to take ownership of, or a percentage of, an asset. The asset will generally be illiquid and/or not regularly traded in any market. For these particular investments CCLA may take into account the following execution factors:

  • price (relative importance – generally high)
  • location of professional support (relative importance – generally medium)
  • costs and tax issues (relative importance – generally high)
  • yield (relative importance – generally high)
  • certainty of execution (relative importance – generally medium)
  • any other criteria relevant to the execution of the transaction.

The relative importance of the execution factors will be judged on a transaction-by-transaction basis in line with CCLA’s commercial judgement and experience in light of relevant information and taking into account the characteristics of:

  • the client
  • the transaction in question, including liquidity and yield
  • the asset type in question
  • the execution venue the order may be executed.

In private market transactions CCLA will transact as agent of its client directly with the counterparty and in private market trades the counterparty will be the execution venue.

Specific client instructions

As an investment manager/adviser of funds and segregated accounts, CCLA’s client is unlikely to provide specific instructions. In the event that a client does provide CCLA with specific instructions to deal on their behalf, it will execute the orders in accordance with those specific instructions and will have complied with its obligation to obtain the best possible result when executing that order by following those instructions. Where the instructions relate to only part of an order, CCLA will continue to apply its Execution Policy to those aspects of the order not covered by such specific instructions. Clients should be aware that providing specific instructions to CCLA in relation to the execution of a particular order may prevent it from following this Execution Policy which is designed to obtain best execution for CCLA’s clients on a consistent basis taking into account the factors outlined above.

Subject to any specific instructions that clients may give to CCLA (see the section above, this is unlikely to occur), CCLA may transmit an order to another entity which is affiliated with or related to CCLA or to an external entity for execution.  In doing so, CCLA will act in the best interests of CCLA and consider the provisions of this policy.

Monitoring and review

CCLA regularly monitors the effectiveness of this policy and its execution arrangements to identify, and where appropriate, correct any deficiencies. On a monthly basis a best execution report is generated using LiquidMetrix (a third-party independent transaction-cost analysis provider) and is reviewed by the Dealing team in the monthly trading meeting (this excludes money market brokers where no commission is paid for purchases). A summary of the transaction-cost analysis together with any issues and the action taken to address these is provided to the Investment Committee quarterly. 

The best execution obligation requires CCLA to take all sufficient steps to deliver the best possible result for clients. Although CCLA expects to find instances where it will be apparent that best execution was not provided, there may be legitimate reasons for this, or it may be that CCLA could have improved the service provided to clients. The relevant teams will work together to learn from these incidents and correct any deficiencies identified as a result of CCLA’s best execution monitoring.

CCLA’s compliance team analyse executed trades and undertake post trade monitoring regularly.

CCLA will review this policy at least annually or whenever a material change occurs that affects the firm’s ability to continue to obtain the best possible result for CCLA on a consistent basis using the methods described in this policy. This policy will be provided to CCLA clients.

Consent

CCLA is required to obtain the prior consent of each client to this Execution Policy and prior express consent to allow it to execute orders outside a trading venue. CCLA ordinarily obtains this consent in its management or advisory agreements with clients.

Appendix A

Approved execution venues and counterparties

The following are approved equity and fixed income brokers that may be deemed an execution venue:

Barclays Capital Securities Ltd
Sanford C Bernstein Ltd
Bank of America Merrill Lynch International Ltd 
BTIG Ltd
Canaccord Genuity Ltd 
Cantor Fitzgerald Europe 
Carnegie Investment Bank AB
CF Global Trading (UK) Ltd
Cenkos Securities Ltd 
Citigroup Global Markets Ltd 
Cowen Execution Services Ltd 
Credit Suisse Securities (Europe) Ltd 
Fidante Partners Europe Ltd 
HSBC Bank Plc 
Investec Bank Ltd 
J&E Davy
Jefferies International Ltd 
Joh. Berenberg, Gossler & Co. KG

JPMorgan Securities Plc
King & Shaxson Limited 
Liquidnet
Lloyds Bank Corporate Markets Plc 
Morgan Stanley & co Int PLC
Mirabaud Securities Ltd
Numis Securities Ltd 
N+1 Singer Capital Markets Ltd 
Panmure Gordon & Co Ltd 
Peel Hunt
Redburn Europe
Royal Bank of Canada Europe Ltd 
Royal Bank of Scotland Plc
RiA Capital Markets Ltd 
Stifel Nicolaus Europe Ltd 
UBS Limited
Virtu ITG Europe Limited
Winterflood Securities Ltd

The following are approved foreign exchange approved counterparties that may be deemed an execution venue:

HSBC Bank Plc
Northern Trust 

Approved financial institutions (execution venues) for money market instruments

ABN Amro Bank N.V.
Australia and New Zealand Banking Group Limited
Bank of America N.A.
Bank of Montreal
Bank of New York Mellon (The)
Bank of Nova Scotia (The)
Bank of Scotland plc
Barclays Bank UK plc
Barclays Bank plc
BNP Paribas
Canadian Imperial Bank of Commerce
Citibank N.A.
Commonwealth Bank of Australia
Coventry Building Society
Credit Agricole Corporate and Investment Bank
Credit Industriel et Commercial 
Danske Bank AS
DBS Bank Limited
DNB ASA
Deutsche Zentral-Genossenschaftsbank (DZ Bank AG)
Government of the United Kingdom
Handelsbanken plc
HSBC UK Bank plc
HSBC Bank plc
ING Bank N.V.

JP Morgan Chase Bank N.A.
KBC Bank N.V.
Landesbank Baden-Wuerttemberg
Landesbank Hessen-Thueringen Girozentrale
Leeds Building Society
Lloyds Bank plc
Lloyds Bank Corporate Markets plc
Mizuho Bank
MUFG Bank
National Australia Bank Limited
National Bank of Canada
Nationwide Building Society
NatWest Bank plc
NatWest Markets plc
Nordea Bank AB
Overseas-Chinese Banking Corporation
Rabobank
Royal Bank of Canada
Santander UK plc
Skandinaviska Enskilda Banken AB
Societe Generale
Standard Chartered Bank plc
SMBC Bank
SMBC Bank International
Toronto-Dominion Bank (The)
UBS AG
United Overseas Bank Limited
Westpac Banking Corporation
Yorkshire Building Society

Approved brokers (on OTF or MTF)

BGC Brokers LP
ICAP as a division of TP ICAP Markets
Martin Brokers as a division of BGC Brokers LP
Tradition (UK) Limited
Tullett Prebon Europe Limited

June 2022