1. Background

Apex Fundrock Limited (“AFL”) and FundRock Partners Limited (“FRP”), collectively known as “Apex Fundrock” throughout this document, act as the Authorised Corporate Director (“ACD”) of Open-Ended Investment Companies (“OEICs”), Authorised Unit Trust schemes (“UTs) and is authorised to act as Operator for Authorised Contractual Schemes (“ACS”). These OEICs, UTs and ACs comprise Undertakings for Collective Investment in Transferable Securities (“UK UCITS”) schemes, Non-UCITS retail schemes (“NURS”) and Qualifying Investor Schemes (“QISs”). For Closed Ended Investment Companies Apex FundRock also acts as Alternative Investment Fund Manager (“UK AIFM”). The above are collectively referred to in this policy as “the Schemes”.

As part of Apex FundRock’s role as ACD we have delegated the investment management of the Schemes to Delegated Third Party Investment Managers (“DTPIM”). Apex FundRock and the investment manager are both responsible for ensuring that best execution is achieved for the unitholders of the Schemes. The DTPIM is required to have its own order execution policy which it will adhere to and whilst Apex FundRock has delegated the investment management function, it is still required to hold and maintain an order execution policy, outlining its monitoring framework and the role and responsibilities of both Apex FundRock and the investment manager.

Apex FundRock have received and accepted the order execution policy for each of the investment managers and Apex FundRock are, therefore, able to satisfy our best execution requirements through placing reliance on these order execution policies.

2. Regulatory background

The regulatory foundation of Apex FundRock’s order execution policy and oversight of its investment managements stems from the Markets in Financial Instruments Directive (“MiFID”) with the follow on of MiFID II in 2018, the UCITS directive and the Alternative Investment Fund Managers Directive (“AIFMD”).

When constructing the policy specific focus has been paid to the Financial Conduct Authority’s (“FCA”) Conduct of Business Sourcebook (“COBS”) rules, in particular:

  • COBS 11.2 Best execution for AIFMs and residual CIS operators
  • COBS 11.2A Best execution – MiFID provisions
  • COBS 11.2B Best execution for UCITS management companies
  • COBS 11.3 Client order handling
  • COBS 11.5A Record keeping: client orders and transactions

3. Roles and responsibilities of the investment manager

Obligation to execute orders on terms most favourable to the unitholders of the scheme

The DTPIM must take all reasonable steps to obtain, when executing orders, the best possible result for the unitholders of the Scheme, taking into account the execution factors.

Execution factors

The DTPIM must take all sufficient steps to obtain, when executing decisions to deal, the best possible result for each Scheme it manages, taking into account:

  1. price;
  2. costs;
  3. speed;
  4. likelihood of execution;
  5. likelihood of settlement;
  6. order size and nature; and
  7. any other consideration relevant to the execution of the decision to deal, (together the “execution factors”).

Relative importance

The DTPIM must determine the relative importance of the execution factors, or at least establish the process by which it determines the relative importance of these factors, taking into account the following criteria:

  1. the objectives, investment policy and risks specific to the scheme, as indicated in its prospectus or instrument constituting the fund;
  2. the characteristics of the order, including where the order involves a securities financing transaction;
  3. the characteristics of the financial instruments that are the subject of that order; and
  4. the characteristics of the execution venues to which that order can be directed.

Their importance will vary depending on the characteristics of the order and the DTPIM is to use its professional judgement and experience to determine the relative importance for a particular order.

Execution venues

Having assessed the relevant execution criteria and relative importance of the execution factors specific to that order to achieve consistently the best overall result as well as any specific instructions provided, the DTPIM will select the most appropriate venue(s) from those available and execute the order accordingly.

  • Regulated Market (RM)
  • Multilateral Trading Facility (MTF)
  • Organised Trading Facility (OTF)
  • Systematic Internaliser (SI)

Where applicable, the DTPIM should include in its order execution policy details of orders being traded outside of an execution venue, together with the associated risks of such a trade.

Client order handling, aggregation and allocation

The DTPIM must ensure that all orders are promptly and accurately recorded and allocated by its delegated broker.

The DTPIM should not submit an order aggregated with another sub-fund and/or Scheme order, unless an order allocation policy is established and effectively implemented, providing for the fair allocation of aggregated orders and transactions, including how the volume and price of orders determines allocations and the treatment of partial executions.

Record keeping

The DTPIM is to retain all dealing records for a minimum of five years.

Requirement for order execution arrangements including an order execution policy

The DTPIM must establish and implement effective arrangements for complying with the obligation to take all sufficient steps to obtain the best possible results for the unitholders of the Scheme. In particular, the DTPIM must establish and implement an order execution policy to allow it to obtain, in accordance with COBS 11.2A.2R, the best possible result for the execution of orders.

Monitoring the effectiveness of execution arrangements and order execution policy

The DTPIM must monitor the effectiveness of its order execution arrangements and policy in order to identify and, where appropriate, correct any deficiencies. It must assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether it needs to make changes to its execution arrangements.

Review of the execution arrangements and order execution policy

The DTPIM shall review, at least on an annual basis its order execution policy, as well as its order execution arrangements.

Such a review shall also be carried out whenever a material change occurs that affects the DTPIM’s ability to continue to obtain the best possible result for the execution of its orders on a consistent basis, using the venues included in its order execution policy.

Demonstration of execution of orders in accordance with order execution policy

The DTPIM, through its on-going monitoring of its brokers, must be able to demonstrate to Apex FundRock and/or the unitholders of the Scheme, at their request, that it has executed its orders in accordance with its execution policy.

The DTPIM will be responsible for submitting its best execution checks to Apex FundRock on a quarterly basis as part of the IM certification.

Access to order execution policy

The order execution policy shall be provided to the unitholders of the Scheme in a durable medium, or by means of a website.

The policy is to either be made available on the DTPIM’s website or alternative arrangements will be made by Apex FundRock.

4. Apex FundRock role and responsibilities for oversight of the DTPIM

Investment management agreement

Apex FundRock has an Investment Management Agreement in place with each DTPIM, under which they manage the Schemes in accordance with the Scheme Prospectus. In line with the FCA rules, the DTPIMs are required to provide the unitholders of the Schemes with best execution in relation to the orders they execute or transmit to another entity for execution.

Initial due-diligence review of DTPIM

Prior to appointing a DTPIM Apex FundRock will carry out a full investment, operational and regulatory due diligence assessment of the DTPIM. This will include a review of the prospective DTPIM’s order execution arrangements including its best execution policy, to ensure it is in line with regulation and Apex FundRock’s own requirements for what it considers the best interests of the unitholders.

Monthly independent best execution monitoring checks

Apex FundRock reviews trades across its funds on a monthly basis to check for best execution. This is achieved by using a Transaction Cost Analysis (“TCA”) solution to compare the value weighted average price (VWAP)* and market close price** (known as “the benchmark price”) of an asset to the executed trade price of the DTPIM’s trade. If there is more than a 3% variance when comparing the benchmark price to the trade price, and the Fund has not benefited from this, Apex FundRock will contact the DTPIM for its explanation of the variance.

Apex FundRock also reviews the commission payable per trade against market rates to ensure that a sub-fund or Scheme is not paying excessive costs.

Quarterly best execution monitoring checks on DTPIM data

As part of Apex FundRock’s investment management oversight programme we will, on a quarterly basis, ask the DTPIMs a series of best execution questions. This will also include a six-monthly request for the DTPIMs to provide evidence of their on-going best execution monitoring. The evidence will be reviewed by Apex FundRock to satisfy themselves that the DTPIM is adhering to the relevant rules and regulations.

Annual due-diligence review of DTPIM

As part of Apex FundRock’s investment management oversight programme we will, at least on an annual basis, review the DTPIM’s order execution policy, as well as their order execution arrangements.

Apex FundRock will also carry out a review, when notified, of a material change that affects the DTPIM’s ability to continue to obtain the best possible result for the execution of its orders.

Review of Apex FundRock’s order execution policy

Apex FundRock will carry out a review of its order execution policy annually. Apex FundRock will also do so where there is a material change to our best execution monitoring that will affect the policy.

Access to order execution policy

If the order execution policy is not available through the DTPIM’s website then Apex FundRock will make available the policy upon request.

*primary benchmark used for comparison against executed price.
**secondary benchmark used for comparison against executed price when the DTPIM uses the same benchmark for its own monitoring.

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