Legal and Regulatory
Pillar 3 Disclosures
Numis Securities Limited (“Numis”) is required to establish and implement an order execution policy. This document sets out Numis’ execution policy. It is made available to all Professional and Retail Clients (normally both as an attachment to the relevant client agreement and via our web-site here) to ensure that such clients have appropriate information on the policy and to enable Numis to obtain any requisite consent from clients. As detailed in section 10 of the client agreement, clients are deemed to have consented to their orders being handled in accordance with the terms set out in this policy.
Numis has a duty, when executing orders on behalf of a client, and when receiving and transmitting client orders for execution by a third party, to take all reasonable steps to obtain the best possible result for its clients. Brokers are generally under a duty of best execution. Accordingly, except where outlined below, this Policy applies where Numis executes client orders. Where Numis properly transmits an order to another broker for execution, that broker is expected to be under a duty of best execution. An order is an instruction to buy or sell a financial instrument which is accepted by Numis for execution or onward transmission to a third party and which gives rise to contractual or agency obligations to the client.
Eligible Counterparties - the best execution obligation does not apply in respect of Eligible Counterparties. Accordingly, this policy does not apply to business conducted with any firm which Numis has classified as an Eligible Counterparty in respect of eligible counterparty business. In particular fellow members of an exchange are normally so classified and accordingly this policy does not apply to business carried on with them.
Retail Clients - Numis will always afford best execution (as described below) to clients which it has categorised as Retail Clients. Such clients are deemed always to be legitimately relying on Numis to protect their interests. The best execution obligation is deemed therefore to apply whenever Numis executes orders for such clients, except where specific instruction has been provided (see "Specific Instructions" below). Where Numis properly transmits an order to another broker for execution, that broker is expected to be under a duty of best execution. Where you are classified as a Retail Client, price will always be the most important factor. However, the cost of the transaction, along with the price, will form part of our assessment as to the "total consideration" received (that is, the sum of the price and the costs incurred by clients), where we are passing on any costs to the client. However, no costs are normally passed on to our clients (see below) and so this factor is not deemed relevant in most circumstances.
Professional Clients - this policy will apply where professional clients are "legitimately relying" on Numis to protect their interests, which will need to be assessed in relation to each specific transaction. Generally, we consider this will be the case. Examples of where it might not be the case include (but are not limited to) where there are low levels of price transparency within a particular market, or where it is market practice for the client to request numerous quotes from a number of dealers prior to executing a transaction. Further, where we follow a specific instruction (see below) we will be regarded as fulfilling our best execution requirement.
It should be noted that when Numis executes business for a client, it will normally show on the trade confirmation or contract note sent to the client an indication that it has acted as principal. This does not necessarily mean that Numis has put itself at risk by adopting a long or short principal position. It signifies that Numis is selling to or buying from the client after carrying out some or all of the following actions:
· Buying from or selling to another client who wished to deal in the opposite direction;
· Adopting a principal position whether long or short, especially (though not exclusively) in circumstances where Numis is a formal market maker;
· Adjusting a previously-held principal position whether long or short, especially (though not exclusively) in circumstances where Numis is a formal market maker;
· Buying or selling by using an order book facility.
The securities bought or sold by using some or all of the actions set out above are then aggregated and sold on to, or bought from, the original client.
Execution factors & execution criteria
In seeking to give a client best execution, the FCA Handbook requires Numis to take into account the execution factors set out below, as appropriate in the context of the client's order. It is incumbent on Numis to decide the relative importance of each such factor. In making this judgement, Numis must consider certain execution criteria. These are also set out below, together with a note of the relative importance that Numis attaches to each execution factor.
Analysis of execution factors
In appraising the execution factors, it is important to emphasise a sharp difference that distinguishes an institutional securities firm from a retail securities firm. The latter will execute business for a client at their discretion. By contrast in the institutional marketplace, usually institutions have dedicated centralized dealers through whom all orders are routed; some institutions have fund managers who play the same role. This means that execution factors are discussed by Numis with skilled professionals and an agreed strategy thus emerges. Thus in many instances Numis will be acting on the specific instructions of the client.
A further difference is that many of the institutional dealing orders received by Numis are of a size well in excess of the amount that could be executed by using any order book facility or be satisfied by the principal position-taking of Numis or any other firm. Such orders are executed by working (i.e. sales trading) the order - that is, by finding clients who are willing to deal in the opposite direction from the original order in addition to seeking liquidity across multiple venues (both lit and dark). Numis may, if stock is available or saleable at an appropriate price, execute the deal in part by using an order book facility provided by one of the execution venues. To complete such business it may take a principal position (long or short) to fill any gap. In the case of smaller orders, Numis may execute the business by using the order book facility or by adjusting its own principal position (long or short).
Price, size, speed and likelihood of execution
Numis believes that, unless a client has specifically indicated to the contrary, price is the most important factor in the result desired by the client. It therefore rates price as being of primary importance. However price will be affected by the size of the intended bargain. Most of the business conducted by Numis is in amounts well above the displayed size and accordingly there may be a differential between a price attaching to a displayed size and the price at which a much larger order can be executed. Speed and likelihood of execution are, in Numis’ judgement synonymous. Once again they will affect price. If in a particular case a client wants prompt execution, it may be impossible to satisfy his price aspirations; whereas if he is prepared to wait, it may (depending on such matters as news flow on results from the underlying company) be easier to obtain the desired price. Speed also interrelates with size. In some circumstances the client will wish the order to be executed on a staggered basis which may limit the market impact of an abnormally large order; in other cases the client will not wish the matter to be handled piecemeal but to be executed in a single bargain, or in a few bargains. It is the practice of Numis to discuss these matters with the client in each relevant case and to follow the importance that the client attaches to the interrelation between price and speed. Numis does not normally make decisions on such matters without discussion with and without the consent of the client.
When Numis works an order, it is impossible to compare the result with what another firm in like position might have achieved. Numis does evaluate its execution performance on the basis of liquidity available across multiple venues and in the context of any instruction from the client. By contrast, when Numis receives an order in an instrument that is within a displayed Exchange Market Size (“EMS”) and where there are recognised registered market makers, it can make comparisons between the prices available from different market makers (including the in-house market maker). It is the policy of Numis to execute all business through the in-house market maker if the latter makes a market in that stock.
Likelihood of settlement
When dealing in shares whose principal quotation is in London, Numis does not regard likelihood of settlement as relevant to its execution policy. Its standard business is in shares which have their primary quotation in the London market. The settlement of such bargains is carried out through the external CREST clearing system. Even if Numis acts as agent in a particular bargain, the dealing rules of the exchanges on which it acts require it to assume liability as principal to its clients. The position is the same in respect of those bargains (a minority of the overall business) that Numis carries out in foreign markets. The securities involved will normally be quoted on an exchange and will be subject to the centralised clearing and settlement procedures of that marketplace. The only relevance of likelihood of settlement is that if Numis were acting for a client and if there were a sole possible counterparty in respect of that order, Numis would refuse to conclude the bargain if it had doubts about that counterparty’s ability to settle until it had clarified the position. This would be the case even if the price acceptable to the counterparty were particularly favourable to the client. Numis would normally consult with the client in such circumstances.
Numis does not believe that cost is relevant to giving the client best execution because it does not in practice pass on to clients the dealing costs it incurs (though contractually it reserves the right to do so) – for example, the trade reporting fees which are payable for each bargain executed on the London Stock Exchange. Likewise in the case of foreign bargains executed on markets outside London, Numis absorbs the bargain costs – for example, settlement costs – associated with such executions.
Analysis of execution criteria
Numis is required to consider how the execution factors may change in the light of the execution criteria.
Numis believes that the characteristics of the client (especially whether categorised as a Professional or as a Retail Client) have little effect on the grading attributable to the execution factors. It regards price as being the most important requirement of any type of client. It is likely that Retail Clients will deal in smaller amounts than institutional (Professional) clients and this means that in such cases size (and hence the impact of size on price) is less likely to be a significant factor.
The characteristics of the client order are principally relevant in understanding whether the client wants the best price, even at the risk of delayed execution; or is prepared to sacrifice a fraction of price in return for immediate execution. The orders received by Numis often include specific instructions. The salesmen and sales traders will reflect to the client what can be done and will execute the order or part of it as the client instructs.
Whilst the characteristics of the financial instrument will generally have limited significance, some will be more liquid than others and illiquid instruments will be less readily saleable in volume. This will emphasise the repercussion of size / likelihood of execution on price as mentioned above. With respect to some instruments, particularly in the fixed interest market, effecting a borrow against a short position is frequently not available and in such circumstances the ability to settle becomes a significant factor in the price or liquidity discovery process.
The characteristics of different execution venues have a limited effect on the execution factors. Unless instructed to the contrary by the client, Numis will seek price competitive liquidity across multiple venues in order to achieve the best possible result for the client.
Numis may use one or more of the following venues listed below to enable it to obtain the best possible outcome on a consistent basis when executing an order on a client's behalf. When choosing entities for inclusion on this list, Numis assesses each entity's ability to obtain the best outcome on a consistent basis having regard to the execution factors listed above. The list below is not exhaustive, and Numis may use an execution venue not included on this list.
Numis currently has direct membership with the following exchanges and Multilateral Trading Facilities (“MTF”):
Numis has access to and actively trades on a number of Dark Pools/Venues including, but not limited to:
Numis accesses all other exchanges via DMA/DSA arrangements with brokers (the list is not meant to be exhaustive and is subject to change without notice):
Numis may trade over-the-counter if the instrument concerned is unlisted.
Numis is aware that a number of large securities firms often internalise trades done with them - that is, they meet supply and demand for a security by having own account or internally-managed funds buy or sell that security. If the security concerned is one of the stocks designated ‘liquid’ under the MIFID regime, then such a firm may well fall within the definition of a Systematic Internaliser and be obliged to make public quotes in that stock. Where the counterparty to Numis is acting as a Systematic Internaliser, any bargain done with it in that capacity will always be executed on an over-the-counter basis. In other circumstances where such a firm acts as an Internaliser, it will often agree to do business only if the bargain is treated as over-the-counter. Thus Numis may, in executing a bargain, find itself doing business with a firm which insists on doing the business over-the-counter and which may, in the case of liquid stocks, be acting as a Systematic Internaliser.
Clients are informed of the possibility that Numis may execute bargains away from a Regulated Market or a MTF through the client agreement and in this document, which is attached as a schedule to the client agreement. By agreeing to the client agreement, a client gives express consent to such a possibility.
Numis has chosen the above execution venues without consideration as to its own commissions or execution costs. The following paragraphs explain the factors that influence Numis’ choice of execution venue. Numis keeps under constant review the list of execution venues to which it has arranged access so as to be satisfied that it is able to deliver best execution to its clients on a consistent basis.
Numis caters principally for wholesale clients dealing in instruments of varying liquidity. Accordingly many client orders are of a size well in excess of the amount that could be satisfied immediately either by available market liquidity or by the principal position-taking of Numis or any other firm. Such orders are executed by working the order. In these circumstances the execution venue used is often of secondary importance as the terms of the bargain are negotiated with a client or clients wishing to act in the opposite direction to the original client. The execution venue used will not affect the price of the negotiated bargain. Wherever possible it is the policy of Numis to do all negotiated equity business subject to the Rules of the London Stock Exchange and for all such bargains to be trade reported to the London Stock Exchange.
There may be specific cases where, for good reason, Numis deviates from this policy – for example if another firm is offering a favourable price and insists on carrying out the bargain over-the-counter. If Numis chooses to become a member of any other execution venue and a bargain is executed on such venue, then that will be the execution venue for that bargain.
Numis does not charge a differential commission for executing business on one or other of the various execution venues that it uses. The costs to Numis of executing on different execution venues are largely uniform, although Numis incurs a charge for trade reporting to the London Stock Exchange but not for trade reporting to certain other exchanges (for example ISDX). Numis does not pass any such cost on to dealing clients (although contractually it reserves the right to do so) and the choice of execution venues is not affected by this factor (the exception being that if a client order is, according to instruction, being executed on a passive basis Numis may select an execution venue, for either a part or all of the order, on the basis of cost, but only providing that, in its judgement, access to price competitive liquidity is not being compromised. Accordingly Numis does not discriminate unfairly between different execution venues.
Numis is not a member of any foreign exchange but, through DMA, it is able to access the order book of many global equity markets to input orders directly into those foreign order books.
If there is a client order in a foreign equity, and it is not feasible to execute it by using one of the facilities mentioned in the previous paragraph, then Numis may carry out business for a client by passing the order on to a foreign broker for execution on a foreign market. It is often the case that such an order is covered at least in part by specific client instruction. Where in these circumstances a dealing order is not covered by specific instruction, Numis will rely on the foreign broker to provide best execution.
It should be noted, in the case of foreign equities, that there will be occasions when, to carry out the client’s wishes, it will be necessary or desirable for Numis or its agents to use a market which is not a Regulated Market or a Multilateral Trading Facility. Both these terms apply only to markets within the EEA. In countries outside the EEA the local markets will not fall into either of these categories and accordingly the business will have to be carried out (whether through an automated dealing facility or through an agent) outside of a Regulated Market or Multilateral Trading Facility.
Numis may on occasion trade with another firm over-the-counter – for example, if the other firm is offering a favourable price and insists on carrying out the bargain over-the-counter. The discussion on internalisation set out above in respect of UK listed equities applies equally here.
There may be rare cases where an order is received in a foreign equity which has no listing on any exchange. In these circumstances Numis will be compelled to deal outside of a Regulated Market or Multilateral Trading Facility with whatever counterparty may be available.
Clients are informed of the possibility that Numis may execute bargains away from a Regulated Market or a Multilateral Trading Facility through the client agreement and in this document which is attached as a schedule to the client’s agreement. By accepting the terms of the client agreement, a client gives express consent to such a possibility.
Aggregation and Allocation
Numis will execute comparable orders sequentially and promptly unless the characteristics of the order or market conditions make this impractical. Numis may on occasion aggregate client orders when we believe it is in the clients’ best interest to do so. Clients should be aware that aggregation may work to their disadvantage in relation to a particular order. When allocating an aggregated transaction which includes one or more customer’s orders, Numis will allocate the order on an equal basis, which we consider gives the fairest possible outcome.
Receiving and Transmitting Orders
Where Numis receives a client order and transmits this to a third party for execution, it will take all reasonable steps to ensure best execution is achieved by that entity, taking into account the client's specific instructions (if any), as well as the execution factors outlined above. Numis will, in each instance where it is receiving and transmitting a client order, consider whether it is reasonable to simply transmit the order to another entity, or whether additional control must be exercised by Numis when instructing the third party in relation to the order.
Monitoring & review
Numis will monitor compliance with its MiFID order execution policy on a regular basis.
Numis reviews its order execution arrangements and this policy annually, save that it may be reviewed or amended more frequently. We will inform you of any material changes to our order execution arrangements or policy.
If a client so requests, Numis will provide evidence demonstrating that it has executed its orders in accordance with its execution policy.
It has been explained above that Numis normally executes dealing orders in liaison with the client. In this sense an agreed strategy develops and this may be regarded as a form of specific instruction.
Where the client gives Numis a specific dealing instruction, Numis will (subject to FCA rules) execute the order in accordance with that instruction and that shall be regarded as fulfilling Numis’ duty of best execution in respect of that part of the order to which the specific instructions relate.
If the specific instruction relates to a part, or to an aspect, of the order, then Numis will execute that part or aspect of the order in accordance with the instruction; but will seek to provide best execution in respect of the balance of the order that is not covered by the specific instruction.
Employees of Numis are forbidden to suggest to, or to induce, the client to give an instruction to execute an order in a particular way if they ought reasonably to be aware that such an instruction is likely to prevent Numis from obtaining the best possible result for that client. The client agreement includes a warning, however, that a specific instruction may prevent Numis from following its best execution policy in respect of the order or of those aspects covered by the specific instruction. Should Numis, in its judgement, consider that a client’s instruction is preventing, or is likely to prevent, the best possible outcome for the client then Numis will bring this to the attention of the client so as to give the client an opportunity to revise or reconsider the basis of the instruction (this statement applies equally to OTC markets and to all instruments).