Best Execution Policy

Introduction

This document sets out the Execution Policy and the approach to providing best execution, as required by the Markets in Financial Instruments Directive 2014/65/EU (‘MiFID II’) and COBS 11.2 of the Financial Conduct Authority Handbook. 

MiFID II requires Argonaut Capital Partners (‘ACP’) to take all sufficient steps to obtain the best possible result for our Clients when executing, placing or transmitting orders with other entities for execution, taking into account the factors listed under Execution Factors. 

This Policy applies to ACP acting as investment manager for institutional Clients including its UCITS and any managed accounts. ACP does not trade as Principal. The obligation to deliver best possible results when executing client orders applies in relation to all types of financial instruments, however, due to the varying structures of financial instruments there is no uniform or standard procedure for best execution. Financial instruments include but are not limited to: 

• Transferable securities (such as shares and bonds), 
• Money market instruments
• Exchange traded derivatives
• OTC traded derivatives
• Exchange traded products
• Units in collective investment undertakings
• Financial derivatives
• Forward foreign exchange
• Contracts for difference

Our assessment of best execution will be based on a review of a selection of transactions over a relevant period, rather than on individual transactions.

Best Execution Criteria

When executing client orders, we are obliged to consider the following criteria to determine the relative importance of the Execution Factors listed below:

• the characteristics of the client, including the categorisation as retail or professional
• the characteristics of the client order
• the characteristics of the financial instrument subject to that order
• the characteristics of the execution venues to which that order can be directed
• the characteristics of the underlying portfolio and the investment objectives as stated in the Prospectus

When providing portfolio management services to Clients, we must act in accordance with their best interests. This obligation applies when placing orders with executing brokers. We take all sufficient steps to achieve best execution, considering the following factors:

• Price
• Costs (implicit and explicit)
• Speed
• Likelihood of execution and settlement
• Size
• Nature of the order
• Conflicts of interests in trading with the counterparty
• Ability of the broker to access market liquidity
• Type and characteristics of financial instruments
• Characteristics of the possible execution venues
• Potential market impact of the order and the need to maintain order flow and confidentiality
• Any other relevant considerations for order execution (including the likelihood of a transaction proceeding to completion, expected timeline, credibility of counterparties and general economic environment)

The relative weight assigned to each of these factors will depend on the nature of the investment or divestment (whether directly or through a holding company). The varying nature of market conditions and individual orders means that execution factors will not remain constant. Costs (explicit) are largely made up of commissions, particularly in equity trades. ACP regularly reviews commission rates with the trading counterparty to ensure the best value is achieved for our clients. Costs (implicit) such as opportunity cost and market impact, are minimized through sound pre-trade decision-making. 

From a regulatory perspective, there is no requirement for best execution to be achieved in every trade. However, ACP must demonstrate that all sufficient steps have been taken to obtain the best results on a measurable and consistent basis.

Execution Weightings

We have set out below the criteria which determines how we select the different venues on which we may execute orders. We have also identified the venues where we most regularly seek to execute orders and which we believe offer the best prospects for achieving best execution. Additionally, we will regularly assess the quality of execution provided by these venues and determine whether changes to our execution arrangements are necessary.

When selecting the most appropriate venues for executing orders, we will fully consider the factors relevant to each order, including but not limited to:

• What we reasonably assess to be in the clients’ best interests in terms of executing orders; and
• such other factors as may be appropriate, including the ability of the venue to manage complex orders, the speed of execution, the creditworthiness of the venue and the quality of any related clearing and settlement facilities.
• Factors such as the explicit costs of trading (e.g. commissions) and to make good pre-trade decisions on how to minimize implicit costs (such as market impact and opportunity costs). 

Our policy, in providing best execution, is to apply the same standards and processes across all markets and financial instruments, as far as possible and subject to the procedures outlined here. However, due to the diversity of markets, instruments, and order types, different factors must be considered when determining execution procedures.

In some markets, price volatility may mean that the timeliness of execution is a priority, whereas in others with low liquidity, the fact of execution may itself constitute best execution. In other cases, our choice of venue may be limited (even to the fact that there may only be one platform/market upon which we can execute orders) because of the nature of the order and/or legal documentation. For each of our brokers, we ensure we have their Best Execution policy on record.

Our policy is to maintain a choice of venues and executing brokers that offer the potential to obtain best possible execution for our clients on a consistent basis. Below are examples of weightings assigned to different asset classes, though these may change depending on external factors:

Equities: Argonaut is not affiliated with any broker, bank, or venue. To achieve best execution for equities, the selection of venue, broker, and execution strategy is essential. Execution is determined on a trade-by-trade basis, taking into account factors such as the number of securities, the percentage of average daily volume the trade represents, and daily liquidity. ACP believes that the primary way to achieve best execution in the equity market is to negotiate the lowest possible explicit costs (e.g., trading costs such as commissions). However, as outlined above, other factors may take precedence.

Money Market Instruments: Due to the nature of settlement in money market instruments, greater emphasis is placed on the effectiveness of settlement and clearing when selecting a venue. ACP also considers the counterparty risk posed by the transaction and selects a venue accordingly. As with other assets, price, costs, speed, likelihood of execution, speed of settlement, and order size are also key factors in venue selection.

Foreign Exchange: Given the highly liquid nature of this asset class, cost and price are primary considerations. Other significant factors include previous execution performance, clearance and settlement capability, stability, and credit rating.

OTC Derivatives: Trading in OTC derivatives is limited to pre-authorised counterparties, due to the legal documentation required to be in place (ISDA agreement). Therefore, the operational set-up of the counterparty will be a key consideration. Additional factors include liquidity, counterparty risk, size of the transaction and credit risk. ACP expects the broker to check the fairness of the proposed price by gathering market data used in the estimation of the price of the product and, where possible, comparing with similar or comparable products.

Execution Venues

The decision on which venue to use for execution depends on the various factors described above and our belief that it provides Best Execution on a consistent basis. Possible execution venues include regulated markets, multilateral trading facilities, systematic internalisers, market makers, and other liquidity providers. The current venues are listed in the Appendix but are subject to change without notice. Other counterparties not listed may also be used.

Publishing Information

In accordance with the requirements of MiFID II and the FCA, ACP will publicly disclose, on an annual basis, the top five execution venues for each class of financial instrument in terms of trading volumes for orders executed in the preceding year, together with information on the quality of execution obtained.

Under the MiFID II best execution regulations, investment firms are required to publish annual reports outlining their top five execution venues in terms of trading volumes per class of financial instrument. These reports cover 22 classes of financial instrument and, for each of these asset class include:

• the names and identifiers of the top five execution venues
• the total volume and number of client orders (expressed as a percentage) executed on each venue
• confirmation of whether we executed an average of less than one trade per business day in the calendar year within the asset class.

Monitoring and Review

This policy will be reviewed annually, as well as whenever a material change occurs that affects our ability to continue achieving Best Execution on a consistent basis.

To ensure compliance with this policy, we use Abel Noser software to monitor Best Execution in real-time. The software flags trades for further investigation if certain limits are breached. Any breached tolerance thresholds will be reviewed to determine whether Best Execution was achieved based on other factors. This review forms part of the Firm’s quarterly monitoring.

For further information on Argonaut’s Best Execution please contact Rory Sheward – rory.sheward@argocap.co.uk