Order execution quality reporting


Introduction

The implementation of MiFID II from the 3rd Jan 2018 brought with it new requirements for Investment firms to provide enhanced information to their customers.

One of these is the requirement for firms, who are executing customer orders, to disclose on an annual basis, their top five execution venues for each class of financial instrument in which they have traded in the preceding year. This is expressed in terms of the % of trades to each venue split by Retail and Professional customers.

2020 order venue and quality report

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To accompany these reports firms are required to provide a summary of the analysis and conclusions drawn as part of their execution monitoring processes throughout the year.

AJ Bell Securities Ltd executes business for the AJ Bell group. The top 5 venue reports and this execution summary cover trade execution for all products:

  • AJ Bell Youinvest
  • AJ Bell Investcentre
  • AJ Bell Custody Solutions
  • AJ Bell Securities Execution only (Institutional customers)

Order execution factors

AJ Bell Securities Ltd execute orders in line with the relevant products’ Order Execution Policy.

We take into account various execution factors to determine how the order is dealt to achieve the best possible outcome:

  • Price
    We will always strive to achieve the most advantageous price for an order. This is usually the highest priority factor in attaining best execution.
  • Costs of the transaction
    When assessing which venue to execute an order on, we will take into account any charges that may be passed onto the customer, and ensure the total consideration of the order is the best outcome. This may lead to us executing the deal at a worse price than the best available. This will be a high priority for securities listed on multiple venues.
  • Speed of execution
    For liquid securities where prices can move quickly, the speed of execution can be the highest priority because delays can lead to a detrimental execution price being attained.
  • Likelihood of execution and/or settlement
    For illiquid securities, the absence of competing prices from multiple venues means that the likelihood of execution can be the overriding factor. As the majority of orders are executed ‘on exchange’, settlement risk is reduced because the exchanges have settlement rules. The likelihood of execution is therefore low priority in the execution factors. The priority may increase if competing quotes are retrieved for the same security both ‘on’ and ‘off exchange’, as the settlement risks increase if deals are executed outside of a regulated exchange.
  • Size, nature and complexity of the order
    The best price displayed on execution venues is for a particular size; orders which are over this size will be executed in line with our processes and we will employ the strategy that we consider would lead to us attaining the most advantageous price. Some strategies could lead to delays on the execution of the full order, given the impact any immediate execution may have on the price.
  • Other
    In some circumstances the other execution factors, including market impact, may also be taken into account.

 

Links with execution venues

 

AJ Bell Securities Ltd is a member or participant of the London Stock Exchange, NEX Exchange, Bloomberg MTF and Tradeweb MTF.

AJ Bell Securities Ltd does not have any close links, conflict of interest or common ownership with any execution venues used nor do we receive any payments or non-monetary benefits for directing trades to a specific venue.

Execution venues

AJ Bell Securities Ltd has direct execution connections to many execution venues by way of the Retail Service Provider network (RSP). In addition to the RSP, trades can be executed on other ‘request for quote’ systems namely Bloomberg and Tradeweb, over the telephone directly to the venue or via Direct Market Access providers to route orders onto the relevant Stock Exchange.

A list of the execution venues on which we place significant reliance can be found in the relevant Order Execution Policies.

Two venues have been removed from the RSP network as they have ceased trading activities. We continue to maintain a connection to all available RSP providers.

We commenced trading with an additional venue via the Bloomberg request for quote system in both Exchange Traded Products and Fixed income securities to further improve venue coverage for these securities.

Due Diligence is performed on any potential new venue before a relationship commences and ongoing exposure levels are monitored on a daily basis.

Customer categorisation

Both Retail and Professional customers are provided ‘Best Execution’ on all of their orders unless we are specifically requested to execute an order on a particular venue by the customer.

Our execution process is the same for both customer categorisations:

We will attempt to execute all orders via the RSP network in the first instance and a high percentage of Retail customer orders are executed via this channel. As the average size of orders from our Professional customers tends to be higher, a lesser percentage is executed via the RSP network with the balance executed by the Dealing team using the telephone or other ‘request for quote’ systems. This explains the difference between the venues used across the Client categorisations.

Execution criteria

When executing or routing orders we take into account certain criteria for determining the relative importance of the ‘execution factors’:

  • characteristics of the customer;
  • the characteristics of the order and the security that is the subject of that order; and
  • the execution venues to which the order can be directed.

 

The best possible result is usually determined in terms of the total consideration, representing the price of the instrument together with any related costs of execution (including any product costs) which is passed onto the customer but as explained under the Order Execution Factors other factors can take precedence.

 

Execution analysis

AJ Bell Securities uses a third-party system supplier to analyse execution performance.

All trade data is sent to them and the execution price is benchmarked against the best price available on leading venues for the size of the order and execution time of the trade.

Data is returned and analysed on a regular basis and trades with a price outside of the best price available are reviewed, measured against alternative benchmarks (such as the volume weighted average price) dependant on the nature of the trade or specific instructions provided by the customer and to ensure that the Best Execution Policy has been followed.

Any trades which do not meet the required benchmark or where Best Execution Policy has not been followed which has led to any customer detriment in terms of the ‘best outcome for the customer’ are reviewed and appropriate action taken.

Execution reports which detail all trades and any actions taken against either an individual trade or a venue/counterparty are documented and reviewed on a monthly basis within our ‘Best Execution Forum’ whose members consist of the Operations Director, Head of Dealing, the Dealing Manager and the Compliance Manager.

Due to the absence of a ‘consolidated tape’ which would provide a comprehensive list of transactions across all venues we were unable to use any output to assess execution performance.

Top five venues

As previously detailed AJ Bell Securities Ltd is required to publish our Top 5 Venues to which we have executed business on an annual basis, for each class of financial instrument expressed in terms of the % of trades to each venue split by Retail and Professional customers.

Separate reports are also provided for each customer category where we have ‘executed and transmitted’ orders. This is where we have routed orders to alternative counterparties for order execution on markets of which we are not members. This constitutes orders on overseas exchanges where the Counterparty will place orders onto the exchange on our behalf where the trades are unable to be executed via the RSP.

Based on our ongoing monitoring throughout the year the results are as expected. Retail and Professional execution venues will differ as the higher average trade size results in fewer orders for Professional Customers executing via the RSP network.

  • Shares and depository receipts
    The top five venues are consistent with levels we have seen throughout the year, and are dominated by those that provide the widest market coverage via the RSP network.
  • Exchange-traded Funds/Structured finance products
    We use a wide range of specialists for our execution venues in these securities. Orders which are unable to be executed via the RSP network will be executed via the Bloomberg and Tradeweb MTFs or over the telephone. The Top 5 venues are as expected given the differential of venues connected to the RSP network and those available on the MTFs.
  • Debt securities
    All orders are executed on the Bloomberg MTF or via the telephone. The Top 5 venues reflect this approach and are consistent with our Venue connections via the MTF.
  • Securitised derivatives/warrants
    The results are consistent with expectations, with Société Générale being the significant venue as a result of the number of these types of securities issued and listed onto the London Stock Exchange by this counterparty.
  • Equity derivatives
    As detailed on the venue reports, we execute low volume business in these financial instruments and the result reflects the fact we only traded once in the year for a Professional Client.
  • Other instruments
    Our top venues represent the high level of trades we receive in Collective Investment Funds (Oeics and Unit Trusts) and are detailed by the Fund Provider who manufacture the funds range for the investments made.

 

Additional information

 

  • Directed orders
    Where a customer specifically requests us to execute their order on a specific venue, the regulation does not consider it to be part of our standard execution process, and so it is appropriate for the details to be separately identified.
  • Aggressive and passive orders
    This details the % of orders entered onto the order book of an exchange that either took liquidity (aggressive) or provided liquidity (passive). We classify executions on the RSP as taking liquidity, we do not route unexecuted limit orders onto the exchange as they are ‘minded’ within our system and trigger for execution when the limit price has been reached; we therefore also classify these as aggressive. Orders worked in the market via a market maker are also classified as aggressive as we ourselves have not placed the order onto the order book of an exchange.

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