Ediphy Markets Ltd, also trading as EDIPHY, (the “Firm”) is authorised and regulated by the Financial Conduct Authority (FCA). The Firm undertakes execution services on behalf of its clients.
The Firm is an investment firm and, as a result of the activities it undertakes, falls within the scope of the Market in Financial Instruments Directive (MiFID). Investment firms subject to MiFID must take all sufficient steps to obtain the best possible result when executing orders on behalf of clients, taking into account the execution factors. This is the best execution obligation and its requirements are set out in the FCA Handbook under COBS 11.2A.
In accordance with the best execution requirements, the Firm will always act in the best interests of its clients when placing orders with other entities for execution.
Best execution applies to all types of financial instruments, but it will be applied in a manner that takes into account the different requirements associated with the execution of orders pertaining to different types of financial instruments.
It should be noted that best execution will apply to each client order executed.
As required by FCA regulations, the Firm has produced this Execution Policy (“EP”), which sets out the arrangements that the Firm has implemented in order to comply with its best execution obligation. The Firm must obtain the prior consent of its clients to this Execution Policy.
All staff with responsibility for placing orders must ensure that, in placing orders, they always act in the best interests of their client. This will be achieved by following the approach set out in this policy, unless it can be demonstrated that a better outcome can be achieved by employing an alternative approach. If an alternative approach is employed, the placing individual must record and report the circumstances to the Compliance Officer, who will consider whether amendments to this EP are required.
If the Firm receives specific instructions from a client in relation to a transaction, those instructions supersede its EP. Execution of the order must comply with the client instructions and, where not covered by the client’s instructions, with this EP, to an extent compatible with the client’s instructions.
Therefore, if you require your order to be executed in a particular manner and not in accordance with our EP, you must clearly state your desired method of execution when you place your order. To the extent that your specific instructions are not comprehensive, we will determine any non-specified components in accordance with our EP. Any specific instructions from you may prevent us from taking steps that have been designed and implemented in this EP to obtain the best possible result for the execution of those orders in respect of the elements covered by the instruction. Notwithstanding specific instructions do not release us from our obligation to provide Best Execution in relation to those aspects of the order where you have not provided specific instructions, (e.g. timing of the execution).
The Firm will be involved in the transmission or execution of orders in all types of financial instruments. When determining our approach to achieving best execution, the Firm must decide whether to execute the trade itself via Direct Market Access (“DMA”), or whether the transaction will be transmitted to another executing Broker/Counterparty. This is the initial step in ensuring Best Execution is provided. The decision is taken with reference to the “execution factors” and the “execution criteria”.
The Firm is a MIFID Investment Firm as described under MiFID II (MIFID 2014/65/EU) does not deal with Retail Clients in accordance of Annex 1 Section of MiFID II.
A Client Order is an instruction from a client to buy or sell a financial instrument. For that order to be considered as such there must be:
If a client to whom the Firm owes a best execution obligation is acting on behalf of their own customers, the Firm (unless otherwise agreed in advance) will only owe best execution to the client with whom they have a direct relationship, and not customers of the Firm’s client
This policy is applicable to all Clients classified as Eligible Counterparties and Professional Clients. The Firm owes a duty of best execution to Professional Clients only.
In line with changes under MIFID II, the Firm will classify public bodies that manage public debt at national or regional level as Professional Clients. A Client has the right to request reclassification as a client which benefits from a greater degree of regulatory protection. The Firm does not have Retail Client Permissions and therefore cannot accede to such a request.
Once a client is classified as an Eligible Counterparty for the purposes of a particular instrument or investment services, that client may request to be reclassified. The Firm does not have to agree to a reclassification request but will consider such requests in exceptional circumstances.
The Execution Factors are any considerations relevant to the execution of an order. The Firm’s EP sets out the process for determining the relative importance of each of the execution factors in relation to each trade.
When executing orders and selecting execution venues, the total consideration includes the following explicit external costs
When executing a Client Order, the Firm must take into account the following criteria to determine the relative importance of the execution factors:
These criteria should be carefully applied in each instance to determine the priority of each execution factor. Further detail regarding the application of the execution criteria is set out below.
The Firm at all times will act in accordance with the ‘Clients Best Interest Rule’ and its Conflicts of Interest Policy.
There are a number of circumstances however in which best execution does not apply:
A key part of the process of obtaining the best possible result for the client, and therefore one that is integral to this EP, is the decision as to whether to use a Broker/Counterparty or Venue to execute the order. A further decision will then need to be made as to the choice of a suitable Venue/Broker/Counterparty.
Where there are competing options, the Firm will consider the full cost and commission implications of each. The Firm’s internal commission structure will not favour one over another and its commission charges will reflect only those charges it incurs.
For each of the financial instruments traded by the Firm, once the decision to deal has been taken, the choice must first be made as to whether to use a Broker/Counterparty or whether to execute the transaction directly on a Trading Venue. If the former approach is chosen, a Broker/Counterparty is selected. If the latter approach is taken, a Venue is selected. This decision will be unique depending on the financial instrument and will be based upon the relative importance of the Execution Factors and Execution Criteria.
The nature and circumstances of the transaction will determine the priority given to each of these Execution Factors. In determining priority, the Firm will take account of the characteristics of the financial instrument, the market in question and the circumstances of the order, including any criteria specific to the client.
The Firm will ordinarily treat price, followed by cost, as the highest priority execution factor to differentiate between Venues/Brokers/Counterparties. However, where the Firm considers that there is a reduced likelihood of successful execution or settlement through a particular Venue/Broker/Counterparty, the Firm should avoid trading through that entity. Furthermore, in circumstances where there is rapid price movement and any delay is considered likely to disadvantage the client, the Firm should treat speed as the priority factor (i.e. above considerations of price and cost).
In deciding whether to place an order through a Venue/Broker/Counterparty, the Firm will apply the execution factors as follows:
(a) Likelihood of successful execution and settlement;
(b) Price / Price spreads;
(c) Financial instruments traded;
(f) Trading hours;
(g) Explicit external costs including fees;
(h) Total consideration of transaction;
(j) Quality of data;
(k) Reliability of fills and clearing;
(l) Counterparty risk; and
Consequently, the Firm’s use of Venues/Brokers/Counterparties is intended to enhance the overall quality of execution taking these factors into consideration. If the same transaction can be executed on similar terms, without the payment of brokers’ commission, it is the Firm’s policy to avoid the appointment of a broker for that transaction.
Should the nature of the financial instrument concerned present challenges to successful execution due to its obscurity, its illiquidity or due to under-researched markets or small capitalisation, it is the Firm’s policy to consider engaging a third-party Broker/Counterparty for such a transaction. In selecting the appropriate Broker/Counterparty, the priority factor for consideration will be their expertise in relation to the financial instrument in question. This is based on the view that, the greater the Broker’s/Counterparty’s expertise, the better will be the overall execution (in terms of the achievement of execution and price), albeit that cost, especially the broker’s commission, may not be the most competitive and is thus de-prioritised.
It is the Firm’s policy to select the Venue/Broker/Counterparty that charges the lowest commission rate. However, as is specified elsewhere in this policy, cost of transaction is ordinarily not the highest priority factor and, in some circumstances, will be a low rated factor. Where there is a direct choice of Venue/Broker/Counterparty, with other factors being equal, the liquidity pool with the lowest commission rate will be used.
By direct extension, where the payment of commission can appropriately (and without client disadvantage) be avoided altogether, it is the Firm’s policy to deal accordingly.
Where a transaction is large in comparison to the normal market size for that financial instrument, it is the Firm’s policy to consider use of a Broker/Counterparty to manage the execution of the transaction, on the consideration that the Broker/Counterparty possesses the expertise necessary to achieve effective execution of that transaction. In these circumstances, the Firm’s priority factor will ordinarily be either the Broker’s/Counterparty’s ability to complete the transaction successfully, or price. Consequently, the cost of the transaction (in terms of the Broker’s/Counterparty’s commission) will be attributed a relatively low priority, reflecting the importance of selecting a broker with the requisite expertise.
When the price of the contemplated financial instrument is moving rapidly, either as a result of the issue of public information relating specifically to that instrument, or because of wider market movement, speed of execution will be the priority factor. Speedy execution is achieved through either appropriate DMA, if available, or the use of a large Broker/Counterparty capable of achieving rapid and effective execution in the circumstances and with the financial instrument in question. Secondary to speed will be successful execution, followed by cost. The price factor in these circumstances is thus inevitably de-prioritised.
Where speed of settlement, as an execution factor, is of material importance, this will be prioritised above cost of transaction and price, although this does not imply that cost and price are irrelevant – merely of lower priority. As a means of procuring speedy settlement, it will normally be necessary either to select an execution venue which provides fast settlement terms as standard or to negotiate with a Broker/Counterparty for special settlement terms. The latter will usually result in the selection of a substantial and well capitalised Venue/Broker/Counterparty capable of providing such a service, notwithstanding that they may not be the most cost competitive. In exceptional circumstances, settlement may be delayed and the terms of this will be agreed between the Firm and the relevant Venue/Broker/Counterparty at the time of transmission. In these circumstances, the speed of settlement is inevitably de-prioritised.
In the selection of a Venue/Broker/Counterparty, geographical location may be a material consideration. Where appropriate, in order to minimise the cost of transaction, it is the Firm’s policy to use DMA to which it has access. In practical terms, this will usually only apply in geographical locations where well-developed markets exist. If the financial instrument concerned is obscure, the use of a Venue/Broker/Counterparty with known expertise in relation to that instrument and its geographical location will ordinarily be the preferred means to ensure successful execution and the best price, recognising, however, that the Venue/Broker/Counterparty may not be competitive on cost.
In other circumstances, transactions will generally be arranged through a UK/EU-based Venue/Broker/Counterparty where the Firm is able to procure competitive commission rates and has reason to believe that the Venue/Broker/Counterparty is competent to execute the transaction in question, thus prioritising satisfactory execution, price and cost in that order.
As set out above, the selection of a Venue/Broker/Counterparty will result from the prioritisation of the Execution Factors according to the individual transaction. It is acceptable in some circumstances, as explained above, for price and/or cost not to be the highest priority execution factors. However, where the decision is taken that other factors have higher priority in the context of an individual transaction, a record should be made, as part of the transaction record, of that decision and the rationale for it. Price and cost will usually be the highest priorities, subject to the fundamental capacity of that Venue/Broker/Counterparty to facilitate the transaction.
The Firm periodically reviews its Venue, Broker and Counterparty relationships, details of such are recorded and retained by the Compliance Officer.
The Firm must obtain the prior consent of each client to its Execution Policy. Additionally, before the Firm is permitted to execute transactions on behalf of clients outside a Regulated Market, Multilateral Trading Facility (“MTF”) or Organised Trading Facility (“OTF”) it must receive from clients their prior express consent. By placing an order to trade or signing a management mandate the client is deemed to have consented.
Should the Firm amend this EP materially, it is the responsibility of the Compliance Officer to ensure that clients are notified of that change. A material change is one about which disclosure is necessary to enable the client to make an informed decision about whether to continue utilising the Firm’s services. Immaterial changes do not need to be notified to clients.
As set out above, in the event that specific instructions are received from a client in respect of the execution of a transaction, the Firm satisfies its best execution obligation by following those specific instructions. The Firm must not induce a client to give specific instructions in order to remove the need for it to provide best execution.
The Firm must be able to demonstrate to its clients, at their request, that it has executed transactions in accordance with this EP. It is therefore essential that transaction records provide adequate details for this purpose.
To ensure that this EP remains appropriate and in line with requirements, the Compliance Officer will ensure that it is reviewed annually by the Governing Body of the Firm. A review will also be undertaken in the event of a change of circumstances which may affect the Firm’s ability to achieve best execution.
This review will include the following: