Updated: 1 April 2020
Neural Capital Limited (the “Firm”) is required to take all sufficient steps to obtain the best possible results (“Best Execution”) on a consistent basis on behalf of its clients when executing orders considering the execution factors (“Direct Execution”).
The Firm is required to act in accordance with the best interests of its clients when transmitting or placing orders with other entities for execution that result from decisions to deal, and to take all sufficient steps to obtain the best possible result for the client considering the execution factors (“Indirect Execution”).
This document constitutes the Firm’s best execution policy and procedures (the “Policy”). It sets out the policy and procedures of the Firm that have been established and implemented to ensure sound, transparent and comprehensive execution processes are followed and specifies the controls and safeguards that are in place.
The Firm conducts its business in accordance with all applicable laws and regulations, including the requirements of Conduct of Business Rules (“COBS”) 11.2A “Best Execution” of the FCA Handbook.
The Firm must act in the best interests of its clients when executing decisions to deal, considering several execution factors and criteria which are discussed in detail below.
The Firm’s senior management is responsible for ensuring that robust business practices are operating in all its trading activities to deliver Best Execution on a consistent basis and for promoting a culture that proactively identifies and manages conflicts of interest. The Firm’s senior management are also responsible for the on-going review and monitoring of this Policy, to ensure that it remains robust and fit for purpose, considering, amongst other things, changes to market structures and execution practices and development of new products.
2. ORDER EXECUTION
The Firm executes trades by placing orders with third party executing brokers on behalf of its clients. Orders and Trades are generated systematically and transmitted to the brokers based on pre-determined rules and parameters considering the execution factors and criteria.
3. EXECUTION FACTORS
When executing orders, the Firm will take all sufficient steps to achieve Best Execution, subject to and considering, any specific instructions from the client, the nature of such orders, the priorities its clients’ place upon it in filling those orders and the nature of the markets and products in question.
To deliver Best Execution, the Firm uses its knowledge, experience and judgement to formulate a systematic method to execute trades on behalf of its clients taking into consideration several execution factors including:
- The price that the order can be executed at;
- The costs of execution of the transaction to the client;
- The speed of execution of the transaction;
- The likelihood of achieving execution and settlement;
- The size and nature of the order; and
- Any other consideration relevant to the execution of the specific order (the “Execution Factors”).
4. EXECUTION CRITERIA
The Firm is required to determine the relative importance of the Execution Factors for its clients by considering the following criteria:
- The characteristics of the client, including the categorisation of the client;
- The characteristics and nature of the client order;
- The characteristics of the financial instruments that are the subject of that order; and
- The characteristics of the execution venues/brokers to which that order can be directed (the “Execution Criteria”).
In considering the Execution Criteria and the importance of the Execution Factors, the Firm also considers the client’s understanding and experience of the market in question, the client’s dealing profile, the nature of the dealing service that the client requires, and the specific and general instructions given to the Firm by the client which may prioritise how the Firm fills client orders.
5. EXECUTION VENUES AND BROKERS
The Firm will primarily select the execution venue or broker that in the Firm’s judgment is the most appropriate, considering the Execution Factors and Execution Criteria. The Firm will also consider the market coverage and market intelligence that the execution venue or broker can provide.
When determining the approach to achieve Best Execution the trader must determine which broker or execution venue to use (where more than one is available for a particular financial instrument). The Firm will consider the cost and commission implications of each method where there are competing options.
5.2 SELECTION OF EXECUTION VENUES
The Firm’s selection of execution venues depends on the strategy and classes of instruments to be traded. The Firm conducts due diligence and takes in to account qualitative factors for selecting venues.
The Firm has a set of prescribed investment assets in its current portfolio that are only traded at set execution venues. The assets included in the investment portfolio are selected based on liquidity and access to transparent pricing. An execution venue will not be selected in a jurisdiction that may withhold investors funds or not have a freely convertible currency.
5.3 SELECTION OF BROKERS
The Firm has a thorough selection process with respect to the brokers that it transacts with, which is designed to identify those brokers which consistently provide a high-quality execution service, taking account of the relevant Execution Factors and Execution Criteria. Orders may only be placed with brokers who have been approved by the Firm following its selection process.
The firm selects brokers primarily on its ability to monitor the solvency of the brokerage firm through regulatory filings, quality of service and accuracy of trade confirmations, settlement and clearing. In addition, the firm requires the brokerage to offer high levels of automated trading system integration that is vital for the investment process. This is above the obvious requirement of connectivity and market access to the required Execution Venues.
5.4 EXECUTING/PLACING ORDERS WITH EXECUTION VENUES/BROKERS THAT ARE NOT PREAPPROVED
The Firm is not permitted to execute decisions to deal with an execution venue or place orders with a broker that is not already approved by the Firm unless there are exceptional circumstances. Exceptional circumstances might include where the Firm wishes to trade in an unusual financial instrument that cannot be executed with or by one of the preapproved execution venues or brokers (either at all or in a manner that would be likely to achieve the best possible result for the client). Any execution of a transaction with an execution venue or placing of an order with a broker that falls outside the approved execution venues and brokers must be pre-approved by the Firm’s Compliance Department.
5.6 CROSS TRADES
The Firm does not facilitate cross trades
6. DETAILED REQUIREMENTS FOR EACH FINANCIAL INSTRUMENT CLASS TRADED
For each class of financial instruments, the Firm has defined the key Execution Factors that will be considered when placing orders for execution, in order to choose the counterparty that best suits its requirements.
The principles described in this Policy do not restrict the Firm to act otherwise where it considers that to follow the Policy may result in an order not being executed in a way that the best possible result is obtained for the client.
In case of extreme circumstances, such as disruption of the execution system, the Firm may not be able to execute an order in accordance with this Policy. In such exceptional circumstances the Firm will endeavour to execute client orders in the most advantageous way for its clients under the prevailing circumstances.
If only one place of execution exists, Best Execution is realised when executing the order in that execution venue. The Firm will be able to demonstrate that only one place of execution exists.
6.2 FINANCIAL INSTRUMENTS TRADED
The Firm primarily trades Exchange listed derivatives in the form of futures contracts. The instruments are chosen on the following main (but not exclusive) Execution Factors:
• Depth of liquidity
• Market access and price transparency
• Overall costs of a trade including commissions, Execution Venue fees and margin requirements
• Risk management capability
7. RELATED POLICIES
In addition to this Policy, the Firm’s policies and procedures encapsulate several other areas that are important to ensure robust procedures and form part of the Firm’s overall best execution framework. These include:
• Conflicts of interest management – the Firm has a separate Conflicts of Interest Policy
• Inducements – the Firm’s policy and procedures relating to inducements are set out in its Compliance Manual
• Aggregation and allocation of orders – the Firm has a separate Aggregation and Allocation Policy
• Trade errors – the Firm has a separate Dealing Errors Policy
• The Firm’s overriding obligation to act in its clients’ best interests.
The Firm has an obligation to monitor the effectiveness of its best execution arrangements and this Policy and to demonstrate compliance with this Policy. This obligation has been incorporated into the Firm's general compliance monitoring process. The Firm’s processes are designed to ensure that monitoring assists the Firm in delivering Best Execution for its clients on a consistent basis and that, where necessary, it identifies Best Execution failures or poor client outcomes.
8.2 RESPONSIBILITY FOR BEST EXECUTION MONITORING
Monitoring is performed by the Head of Trading with on-going review and oversight from the Firm’s compliance function. In addition to assessing whether internal processes and this Policy are being followed, the compliance function assesses the monitoring performed by the [trading manager / front office personnel] and may challenge whether Best Execution is being achieved consistently if necessary.
If the Firm’s monitoring procedures identify any deficiencies in the Firm’s Policy and determine that the best result is not being delivered to the Firm’s clients, the issue identified shall be promptly escalated to the governing body with sufficient detail and any proposed corrective action to be taken, including any proposed changes to this Policy.
8.3 MONITORING PROCESSES
As all the instruments traded only have a single Execution Venue, the best execution monitoring process is focussed on execution accuracy, referred to as “Slippage”. Slippage is the difference between the theoretical benchmark order price and the actual filled price of a trade.
Slippage is monitored daily by the Trading and Risk Management teams to ensure the execution functionality is performing within the expected parameters.
8.4 SENIOR MANAGEMENT AND ESCALATION
The Firm’s senior management is responsible for ensuring that robust business practices are operating in all its trading activities to deliver Best Execution on a consistent basis and for promoting a culture that proactively identifies and manages conflicts of interest. The Firm’s senior management are also ultimately responsible for the on-going review and monitoring of this Policy, to ensure that it remains robust and fit for purpose, considering, amongst other things, changes to market structures and execution practices and development of new products.
The governing body receives monthly management information relating to Best Execution from the and compliance team.
Any deficiencies or issues identified by the Firm’s monitoring procedures are promptly escalated to the governing body for its review with sufficient detail and a proposal for corrective action to be taken, including any proposed changes to this Policy.
9. POLICY REVIEW
The Firm’s Head of Trading and CIO are responsible for the maintenance and annual review of this Policy and the Firm’s execution procedures. The review focuses on whether the Firm would obtain better results for its clients if it was to:
• include additional or remove existing execution venues or brokers;
• assign a different relative importance to the Execution Factors applicable to each financial instrument class; or
• modify any other aspects of this Policy and/or the Firm’s execution procedures.
The review considers several factors including:
• any deficiencies with this Policy and/or the Firm’s execution procedures identified during the Firm’s monitoring
• any factors that could damage the quality of execution being achieved, such as changes in the market environment and structure (e.g. the entry or exit of market participants, changes to execution venues, services provided by counterparties, significant changes in technology, etc.);
• changes to the types of investment process used;
• changes to the financial instruments used and/or introduction of new products;
• changes to the nature of orders; and
• changes in relevant legislation.
In addition, this Policy and/or the Firm’s execution procedures are reviewed whenever a material change occurs in the market that could affect the Firm’s ability to obtain the best possible result for the execution of its clients' orders.
The Firm’s review also considers a review of the monitoring program to ensure that monitoring processes remain fit for purpose and appropriate.
10. CLIENT DISCLOSURE AND CONSENT
The Firm must provide appropriate information about this Policy to its clients. In order to comply with this obligation, the Firm provides its clients with a summary of this Policy, which is intended to enable its clients to make a properly informed decision as to whether to utilise the Firm’s services.
The Firm must notify clients of any material change that occurs and that affects this Policy. A material change is a significant event that could impact parameters of Best Execution. However, client’s express consent to such changes is not required. Upon request the Firm will demonstrate to its clients that orders are executed in accordance with this Policy.
Upon request the Firm will demonstrate to the FCA that orders are executed in accordance with this Policy.
Annually, the Firm shall summarise and publish on or before 30 April, for each class of financial instruments, the top five execution venues in terms of trading volumes where it transmitted or placed client orders for execution in the preceding calendar year and information on the quality of execution obtained. The Firm shall publish this on its website
at www.neuralcapital.com. Each report shall be available in the public domain for at least two years from the date of publication.
EXECUTION VENUES AND BROKERS
A.1 EXECUTION VENUES
Regulated Markets in the form of Futures Exchanges:
- InterContinental Exchange
- Montreal Exchange
- Intl FCStone (Chicago)
- Interactive Brokers LLC
APPENDIX B 2019
ORDER PLACING – PROFESSIONAL CLIENTS - DISCLOSURE OF TOP FIVE EXECUTION VENUES AND QUALITY OF EXECUTION OBTAINED
Information on the Top Five Execution Venues