Broker-dealer selection/best execution
There is a potential conflict that could arise in relation to the decision made by the sub-advisors with respect to the to the execution of transactions for Client Accounts and the firm’s funds, including the selection of execution venues, the broker-dealer and the negotiation, where applicable, of commissions or spreads. This conflict creates a risk that sub-advisors execute trades with broker-dealers for relationship or other reasons and pay higher commissions or other fees than those that may be charged by other broker-dealers or otherwise do not obtain best execution for clients or the funds.
To manage this conflict, the sub-advisors have written policies for best execution. The sub-advisors employ trading techniques, methods and venues in an effort to seek the best overall price and execution available to meet its clients’ specific needs. The subadvisor’s overall goal is to execute client and fund transactions at the most favorable prices and in the most efficient manner possible.
In connection with the selection of brokers and the placing of orders for equity transactions, the subadvisors seek the best overall price and execution available from responsible brokerage firms, taking into account all factors deemed relevant, including by way of illustration, price, the size of the transaction, the nature of the market or the security, the amount of the commission, the timing and impact of the transaction taking into account market prices and trends, the reputation, the need for anonymity in the market, experience and financial stability of the brokers or dealers involved, and the quality of services rendered by the broker in other transactions.
The sub-advisors maintain an approved list of brokers. The performance of brokers is monitored regularly, and brokers are evaluated based on an assessment of execution, service and value provided. The commissions generated are reviewed at least annually to ensure that brokerage commissions paid align with the brokers’ ranking, and to identify any adjustments that may be required as a result of changes in service levels and/or execution.
While commission rates are monitored as an aspect of best execution, the sub-advisors may determine that the broker charging the lowest commission may not necessarily provide the best execution for a client. Commissions are only one factor considered when determining overall transaction costs. Where the sub-advisor uses soft dollars, the sub-advisor may cause a client to pay a broker that provides brokerage and/or research services to the subadvisor an amount of commissions for effecting a securities transaction for the client in excess of the amount of commissions other brokers or dealers would have charged for the transaction. This can occur only if the sub-advisor determines in good faith that the amount of the commission to be paid is reasonable in relation to the value of the brokerage and research services provided by the broker either in terms of a particular transaction or the subadvisors’ overall responsibilities for discretionary accounts.
For fixed income fund transactions, the Manager and sub-advisors must seek best execution for all Client Accounts and Pooled Funds by executing at the most favourable prices and in the most effective manner possible. The sub-advisors utilize an order process to execute new issue trades and either an order process or a competitive bidding process to execute secondary market trades. The sub-advisor will execute trades only with brokers that have been reviewed and approved by the sub-advisor’s appropriate designee.
In determining which venue or venues and process (order approach or competitive bids/offers) to employ to effect secondary market trades, traders may consider factors such as execution price, speed of execution, the size of the order(s), the trading characteristics of the security involved, execution capability, a broker-dealer’s status as primary market maker in the security or other factors deemed relevant by the trader.
The Manager receives a quarterly certification from the sub-advisors confirming that they have complied with their best execution policy, trade allocation and soft dollars.