Order execution quality reporting

Introduction

Following the implementation of MiFID II on 3 January 2018, investment firms are now required to provide enhanced information to their customers.

Download 2018 order venue and quality report

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As a result, any firms that are executing customer orders must now provide annual reports detailing their top five execution venues for every class of financial instrument in which they have dealt during the preceding year. This is expressed in terms of the percentage of deals to each venue, split by retail and professional customers.

Firms must also ensure that these annual reports are accompanied by a summary of the analysis and conclusions drawn as part of their execution monitoring processes throughout the year.

AJ Bell Securities executes deals for AJ Bell entities including the AJ Bell Investcentre Funds & Shares Service. The venue and execution reports cover trade execution for AJ Bell Securities as a whole.

Order execution factors

AJ Bell Securities executes orders for retail and institutional customers in line with the Order Execution Policy.

We take into account various execution factors to determine how the order should be dealt in order 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 is a member of, or participant on, the London Stock Exchange, NEX Exchange and Bloomberg Multilateral Trading Facility (MTF).

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

Execution venues

AJ Bell Securities has direct execution connections to many execution venues by way of the Retail Service Provider network (RSP). In addition to the RSP, deals can be executed on other ‘request for quote’ systems namely Bloomberg, 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 that we place significant reliance on can be found in the relevant Order Execution Policies.

During 2018 we added new venues to the RSP network, these were added to seek to enhance the best possible results for customers by having a wide range of venues on which to execute trades. We commenced trading with additional venues via the Bloomberg MTF to further improve venue coverage, price discovery and the speed of execution for Exchange Traded Products. 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 proportion 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 proportion is executed via the RSP network. Instead they are executed by the dealing team over the telephone or using other ‘request for quote’ systems.

Execution criteria

When executing or routing orders we take into account the following 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.
  • 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. However, as explained earlier, other factors can take precedence.

Execution analysis

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

All deal 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 deal.

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

Deals will be corrected if they do not meet the required benchmark, or if failure to follow the Best Execution Policy has resulted in customer detriment in terms of the ‘best outcome for the customer’.

Execution reports which detail all deals and any actions taken against either an individual deal or a venue/counterparty are documented and reviewed on a monthly basis by the Head of Dealing and the Customer Services Director.

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 is required to publish the top five venues to which it has executed business on an annual basis, for each class of financial instrument expressed in terms of the percentage of deals 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 venues will differ, as the higher average deals 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 cannot be executed via the RSP network will be executed via Bloomberg MTF or over the telephone. The top five venues are as expected, given the differential of venues connected to the RSP network and those available on the MTF.
  • Debt securities
    AJ Bell Securities does not currently have online execution capabilities, and as such all orders are executed on the Bloomberg MTF or over the telephone. The top five 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 the company.
  • Equity derivatives
    As detailed on the venue reports, we execute low volume business in these financial instruments and the result reflects the fact with only a single overseas order being placed.
  • Other instruments
    Our top venues mostly represent the high level of deals we receive in collective investment funds (OEICs and Unit Trusts) and are detailed by the fund providers 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 either 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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