Best Execution Policy

Introduction

This document sets out the Execution Policy and the approach to providing best execution, as required by the Markets in Financial Instruments Directive 2014/65/EU (‘MiFID II’) and COBS 11.2 of the Financial Conduct Authority Handbook. 

MiFID II requires Argonaut Capital Partners (‘ACP’) to take all sufficient steps to obtain the best possible result for our Clients when executing or placing or transmitting orders with other entities for execution, taking into account the factors listed under Execution Factors.

This Policy applies to ACP acting as investment manager for institutional Clients including its UCITS and any managed accounts. ACP does not trade as Principal. The obligation to deliver best possible results when executing client orders applies in relation to all types of financial instrument, however, depending on the different structure of the financial instrument there is no uniform standard of and procedure for best execution. Financial Instruments include but are not limited to:

• Transferable securities (such as shares and bonds),
• Money market instruments
• Exchange traded derivatives
• OTC traded derivatives
• Exchange traded products
• Units in collective investment undertakings
• Financial derivatives
• Forward foreign exchange
• Contracts for difference

Our assessment of our demonstration of best execution will be based on the assessment of a selection of transactions, as opposed to individual transactions, across a relevant period of time.

Best Execution Criteria

When executing client orders, we are obliged to take into account the following criteria to determine the relative importance of the Execution Factors listed below:

• the characteristics of the client, recognising that ACP acts solely for professional clients and does not execute orders on behalf of retail clients
• the characteristics of the client order
• the characteristics of the financial instrument subject to that order
• the characteristics of execution venues to which that order can be directed
• the characteristics of the underlying portfolio and the investment objectives as stated in the Prospectus

When providing portfolio management services to Clients, we must act in accordance with the best interests of our Clients. This applies when placing orders with executing brokers. We take all sufficient steps to achieve best execution, considering the following factors:

• Price
• Costs (implicit and explicit)
• Speed
• Likelihood of execution and settlement
• Size
• Nature of the order
• Conflicts of interest in trading with the counterparty
• Ability of the broker to access market liquidity
• Type and characteristics of Financial Instruments
• Characteristics of the possible execution venues
• Potential impact of the order on the market and the desire to maintain order flow and confidentiality
• Any other consideration relevant to the execution of the order (this could include the likelihood of a transaction proceeding to completion, expected timeline, credibility of counterparties and general economic environment)

The relative weight attached to each of these factors will depend on the nature of the investment or divestment (whether directly or through a holding company). The varying nature of market conditions and the varying nature of each order will mean that execution factors will not be constant. Costs (explicit) are largely made up of commissions, especially when it comes to equity trades. ACP regularly reviews the commission rates with the trading counterparty to ensure the best value is achieved for our clients. Costs (implicit) are opportunity and market impact and are minimised by sound pre-trade decisions.

From a regulatory perspective, the requirements do not demand that Best Execution is achieved with every trade but ACP is required to demonstrate all sufficient steps have been taken to obtain the best results on a measurable and consistent basis.

Execution Weightings

We have set out below the criteria which determine how we select the different venues on which we may execute orders and have identified those venues on which we will most regularly seek to execute orders and which we believe offer the best prospects for affording best execution. We will also assess, on a regular basis, the quality of execution afforded by those venues on which we execute orders and whether we need to change our execution arrangements.

In selecting the most appropriate venues for the purpose of executing orders, we will take into full account the factors relevant to the order, including but not limited to:

• what we reasonably assess to be in the clients’ best interests in terms of executing orders; and
• other relevant factors may include the venue’s ability to manage complex orders, the speed of execution, the creditworthiness of the venue and the quality of any related clearing and settlement facilities.
• Additionally, we consider the explicit costs of trading (e.g. commissions) and look to make good pre-trade decisions on how to minimize implicit costs (such as market impact and opportunity costs).

Our policy, in providing best execution, is, so far as possible and subject to the processes set out here, to exercise the same standards and operate the same processes across all the different markets and financial instruments on which we execute orders. However, the diversity in those markets and instruments and the kind of orders mean that different factors will have to be taken into account when we assess the nature of our execution procedures in the context of different instruments and different markets. In some markets, price volatility may mean that the timeliness of execution is a priority, whereas, in other markets that have low liquidity, the fact of execution may itself constitute best execution. In other cases, our choice of venue may be limited (even to the fact that there may only be one platform/market upon which we can execute orders) because of the nature of the order and or legal documentation. For each one of our brokers we ensure we have their Best Execution policy on record.

Our policy is to maintain a choice of venues and executing brokers that offer the potential to obtain best possible execution for our clients on a consistent basis. The below provides some examples as to the weightings given to some of the asset classes, although these may change depending on external factors:

Equities: Argonaut is not affiliated to any broker, bank or venue and to achieve best execution for equities, the selection of venue, broker and type of execution strategy is essential. It is a trade-by-trade process by which a decision is made as to the appropriate venue, which might include the number of securities, the percentage of average daily volume that the trade represents and the daily liquidity. For equities, ACP believes that the primary way to achieve best execution is by negotiating the lowest possible explicit trading costs ( such as commissions). However, other factors may take precedence, as described above.

Money Market Instruments: Due to the nature of settlement in money market instruments, more importance is placed on the effectiveness of settlement and clearing when selecting a venue. ACP will also place importance on the counterparty risk posed by the transaction and select a venue with this in mind. As with other assets, price, costs, speed and likelihood of execution, speed of settlement, size of order are also factors when considering a venue.

Foreign Exchange: Due to the highly liquid nature of this asset class, cost and price are of importance. Other factors will also be considered such as previous execution performance, clearance and settlement capability, stability and credit rating.

OTC Derivatives: This is limited to pre-authorised counterparties, due to the legal documentation required to be in place (ISDA agreement). Therefore, the operational set-up of the counterparty will be of importance. Other factors will be considered, liquidity, counterparty risk, size of the transaction and credit risk. ACP will expect the broker to check the fairness of the price proposed, by gathering market data used in the estimation of the price of the product, and where possible comparing with similar or comparable products.

Execution Venues

The decision regarding which venue to use for execution depends on the various factors described above and which we believe provide Best Execution on a consistent basis. Possible execution venues include: regulated markets, multilateral trading facilities, systematic internalisers, market makers and other liquidity providers. The current venues are listed on the Appendix but are subject to change without notice and other counterparties not listed may also be used.

Publishing Information

Following the removal of RTS 28 reporting requirements in the UK, ACP is no longer required to publish top five execution venue reports. However, ACP continues to assess execution quality through internal monitoring tools and periodic broker reviews, to ensure it consistently meets its obligation to obtain the best possible result for clients.

Under the MiFID II best execution regulations, investment firms are required to publish, on an annual basis, sets of reports outlining their top five execution venues in terms of trading volumes per class of financial instrument. The reports cover 22 classes of financial instrument, and for each of these asset classes we report:

• the names of the top five execution venues and their identifiers
• the total volume and number in percentage terms of all client orders executed on each venue
• confirmation of whether we have executed an average of less than one trade per business day in the calendar year within the asset class

Monitoring and Review

This policy will be reviewed on an annual basis, as well as whenever a material change occurs that impacts our ability to continue to obtain Best Execution on a consistent basis.

ACP uses Abel Noser software to monitor best execution outcomes across asset classes. The tool flags trades that fall outside pre-set benchmarks, allowing the Compliance and dealing teams to investigate exceptions. Output from this tool is reviewed monthly as part of the Firm’s compliance monitoring programme and documented accordingly.

Where appropriate, outcomes may be escalated to the Risk & Compliance Committee and used to reassess broker performance or execution strategy.

In accordance with regulatory requirements, ACP will notify clients of any material changes to this policy. Such changes may include significant updates to execution arrangements, selection of counterparties or execution venues, or changes to the relative importance of execution factors. Notifications will be made in a durable medium and in good time prior to the implementation of the amended policy.

For further information on Argonaut’s Best Execution please contact Rory Sheward – [email protected]