1. Background

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

As part of FP’s role as ACD we have delegated the investment management of the Schemes to third party investment managers. FP and the investment manager are both responsible for ensuring that best execution is achieved for the unitholders of the Schemes. The investment manager is required to have its own order execution policy which it will adhere to and whilst FP 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 FP and the investment manager.

2. Regulatory background

The regulatory foundation of FP’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 investment manager 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 investment manager 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 investment manager 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 investment manager 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 investment manager 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 investment manager 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 investment manager must ensure that all orders are promptly and accurately recorded and allocated by its delegated broker. 

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

Requirement for order execution arrangements including an order execution policy

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

Such a review shall also be carried out whenever a material change occurs that affects the investment manager’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 investment manager, through its on-going monitoring of its brokers, must be able to demonstrate to FP and/or the unitholders of the Scheme, at their request, that it has executed its orders in accordance with its execution policy.

The investment manager will be responsible for submitting its best execution checks to FP 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 investment manager’s website or alternative arrangements will be made with the ACD.

4. FP role and responsibilities for oversight of the investment manager 

Investment management agreement

FP has an Investment Management Agreement in place with each investment manager, under which they manage the Schemes in accordance with the Scheme Prospectus. In line with the FCA rules, the investment managers 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 investment manager

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

Monthly independent best execution monitoring checks

FP reviews a random sample of trades across its funds on a monthly basis to check for best execution. This is achieved by obtaining the value weighted average price (VWAP) of an asset via an independent pricing source and comparing it to the trade price. If there is more than a 2% variance when comparing the VWAP to the trade price, and the Fund has not benefited from this, FP will contact the investment manager for its explanation of the variance. 

FP 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 investment manager data

As part of FP’s investment management oversight programme we will, on a quarterly basis, request evidence from the investment managers of their on-going best execution monitoring. The evidence will be reviewed by FP to satisfy themselves that the investment manager is adhering to the relevant rules and regulations. 

Annual due-diligence review of investment manager

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

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

Review of FP’s order execution policy

FP will carry out a review of its order execution policy annually. FP 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 investment manager’s website then the ACD will make available the policy upon request.  

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