Best Execution and Order Handling Procedures for Institutional Customers
This document is prepared to help you and our customers, better understand best execution, how it is obtained, and the procedures employed by Eight Capital to achieve best execution in accordance with the guidance provided by the Investment Industry Regulatory Organization of Canada (“IIROC”) under Dealer Member Rule 3300 and other securities legislations in Canada.
A Dealer Member is required to have policies and procedures in place that are reasonably designed to achieve best execution when acting for a customer in all securities, including OTC securities. In addition, the rule requires that a Dealer Member regularly review, at least annually, the way in which it handles customers’ orders and order flow in order to maintain effective best execution policies and procedures.
What is Best Execution
Best execution is the requirement that obligates a Dealer Member to exercise reasonable care in executing a customer’s order in all securities and in a manner that is advantageous to the customer given the current circumstances. Some general factors in determining best execution may include but are not limited to:
Speed of Execution;
Certainty of Execution;
Size of Order;
Liquidity of the subject security;
The overall cost of the transaction (when these costs are passed on to the client.)
In addition to the aforementioned considerations, Eight Capital also takes into account the following additional factors in order to meet the requirements of Best Execution under Dealer Member Rule 3300:
The depth of the posted market;
The general direction of the market for the subject security;
The last sale, price and volume of the subject security;
The quoted spread of the subject security;
Current market conditions and the reliability of the current quote.
Eight Capital Trading – Institutional Customers
Eight Capital’s (the Firm’s) trading desks are located in Toronto and Montreal. The Firm executes orders for its institutional customers primarily in listed securities, but may occasionally execute orders in unlisted securities. When executing orders on behalf of an institutional customer, obtaining best execution is primarily dependant on the above listed factors.
Institutional orders may be directed to Eight Capital’s trade desk by telephone where they are received and recorded by an IIROC registered trader; or, the customer may choose to enter their order electronically through a FIX connection.
In both instances, the orders are routed through the Fidessa Canadian Trading Platform (“CTP”) trading engine. Fidessa uses a Smart Order Router (“SOR”) that sweeps the Canadian Marketplaces, both protected and unprotected, to seek out liquidity on the different venues. To determine which quotes are eligible to be accessed by the order, the sweep router will access liquidity using a prescribed rule. If an order’s quantity can be fully executed by the total displayed volume of all eligible quotes, the sweep router will access the best- priced quotes first, thereby obtaining best possible outcome for each order.
From time to time, an institutional customer may provide specific instructions on the handling of a specific order in accordance with one or more of the above listed factors. Eight Capital will adhere to execute the customer’s order on their specific instructions taking into account all the factors listed above; however, the firm will only do so in accordance with regulatory requirements to obtain best execution and marketplace rules. The Firm will take every measure in respect of its customers’ instructions; however, under these circumstances, Eight Capital may not be in compliance with this best execution policy.
Eight Capital may connect to the following third parties to access foreign and domestic markets or for their algorithmic abilities. In these instances, a customer order may be subject to the routing and order handling specifications of the third-party.
ITG Canada Corp.
Eight Capital will obtain annual attestations of the Best Execution and Order Handling Procedures from each of the parties listed above and that each has complied with and tested its best execution policies and procedures in accordance with IIROC Dealer Member Rule 3300.
Best Execution and the Order Protection Rule
With the introduction of Alternative Trading Systems (“ATS’s”) and multiple exchanges, an order for a single listed security may be entered and executed on several electronic marketplaces in Canada. Notwithstanding the customer’s consent or instructions, to obtain best execution and meet the Order Protection Rule (“OPR”) requirements under UMIR and National Instrument 23-101 (“NI 23-101”), Eight Capital connects to and routes its customers’ orders to the following ATS’s and marketplaces:
Toronto Stock Exchange – TSX
TSX Venture Exchange – TSXV
TSX Alpha Exchange
Canadian Securities Exchange – CSE (CNX and Pure)
Aequitas Neo Exchange – NEO and NEO LIT
Nasdaq Canada Exchange – CX, CX2 and CXD
Omega ATS ( Omega and Lynx)
Order Handling – Trade in Canadian Listed Securities
Unless an exception is made to obtain best execution for a customer’s order, or otherwise instructed by the customer, the following processes will apply to orders for Canadian listed securities.
For Canadian listed securities, the principal marketplace is the one which the security is listed. For securities that are listed on the Toronto Stock Exchange (“TSX”) and also trade on alternative marketplaces, the principal marketplace shall be the TSX, unless otherwise agreed upon by the customer and an Eight Capital registered representative.
For client orders that are executed on multiple marketplaces, the trade confirmation will include the following disclosure: “traded on multiple marketplaces, details available upon request”.
Hours of Operation
Eight Capital’s trading staff is available to accept and execute customers’ orders between the hours of 9:30 AM and 4:00 PM Eastern Standard Time (“EST”), Monday to Friday, not including statutory Canadian holidays. In some cases, a member of the trading staff may be available before and after the quoted hours; however the Firm cannot guarantee acceptance or execution of orders received outside the stated hours.
Pre-Opening and Post-Closing Order Routing Procedures
Orders received prior to 9:30 AM will be entered into the pre-opening book on the principal marketplace.
Orders received after 4 PM will be entered into the pre-opening book on the principal market place the following business day.
Orders received between 9:30 AM and 4:00 PM will be entered into the Fidessa CTP and routed by the SOR to the best market (the best bid and ask prices) which, taking into account the above listed factors, results in the highest probability of being executed.
Day orders are orders that are only valid for the day they are entered, between the hours of 9:30 AM and 4:00 PM EDT. The remaining unfilled balance of a day orders expire at 4:00 PM if not completely filled. A day order received prior to the opening of the principal marketplace will not route to an alternative marketplace, (“ATS”) but will be handled in accordance with the pre-opening order routing procedures listed above.
If the order is received after the opening of the principal marketplace, the order will be entered into the Fidessa CTP and routed for trading via the SOR in accordance with the order routing procedures listed above. The order, or any part thereof, will be executed against the best available market on a protected marketplace. Any remaining balance of the day order will be booked to the principal marketplace, or on a market place selected by the trader using various parameters. At the end of the trading session, any unfilled balance of the day order will expire unless otherwise instructed by the customer.
Special Terms Orders
Special Terms Orders (“STO”) are orders that carry specific terms that are not executable in the regular market place. STOs are valid between 9:00 AM and 4:00 PM, and will expire after 4:00 PM unless otherwise instructed. STOs are only posted in the terms market on the principal market place, unless they can be executed on an alternate market at the time of entry.
Good ‘till Cancelled Orders
Good ‘Till Cancelled Orders (“GTC”) are orders that carry a specific expiration date; these orders will remain valid until this date. These orders are entered and routed for trading via the SOR. This will ensure the order or any part thereof will be executed against the best available market on a protected marketplace. Any remaining balance of the order will be booked to the principal marketplace, or on a market place selected by the trader using various parameters. The order will remain booked in the trading system until it executes or expires. It is the responsibility of each client to be aware of the expiry date of their orders, and to advise their RR should they wish to reinstate the order.
Market Orders (“MO”) are orders to purchase or sell a security at current prices that are available in the marketplace. Market orders generally obtain a complete fill provided there is sufficient liquidity in the security. The RR will assess market conditions to determine the best course of action. Should the RR determine that market conditions are not favourable and therefore not in the client’s best interest to immediately execute the entire order, the client will then be consulted for the best course of action.
A market order, if received prior to the opening of the principal marketplace, will be entered into the Fidessa CTP and booked into the opening structure on the principal marketplace in accordance with the order routing procedures listed above. The order or any part thereof will be executed against the best available market on a protected marketplace.
If the order is received after the opening of the principal marketplace, the order will be entered into the Fidessa CTP and routed for trading via the SOR in accordance with the order routing procedures listed above. The order, or any part thereof, will be executed against the best available market on a protected marketplace. Any remaining balance of the day order will be booked to the principal marketplace, or on a market place selected by the trader using various parameters. At the end of the trading session, any unfilled balance of the market order will expire unless otherwise instructed by the customer.
Market on Close Orders
A Market on Close Order (“MOC”) is an order to execute a security at the calculated closing price of the security on the principal marketplace. This is an anonymous price facility; the price at which the order will be executed is unknown, until the order is executed. Limit offset orders may be entered; however, execution of a limit order may be filled by the marketplace. Currently, the TSX and the TSX-Venture are the only exchanges that offer MOC facilities. All MOC orders are entered on the TSX or TSXV as the principal marketplace.
A limit order (“LO”) is an order for which the client has set a specific price point at which a security may be purchased or sold. A limit order that is received prior to the opening of the principal marketplace will be entered into the Fidessa CTP and booked into the opening structure on the principal marketplace in accordance with the order routing procedures. The order or any part thereof will be executed against the best available market on a protected marketplace
If the order is received after the opening of the principal marketplace, the order will be entered into the Fidessa CTP and routed for trading via the SOR in accordance with the order routing procedures. The order or any part thereof will be executed against the best available market on a protected marketplace. Any remaining balance of the day order will be booked to the principal marketplace, or on a marketplace selected by the trader using various parameters. At the end of the trading session, any unfilled balance of the limit order will expire unless otherwise instructed by the customer.
Directing Orders to Foreign Markets
Orders for listed securities that are traded in a foreign market are generally executed through another broker dealer, which uses a cross border algo; if such directions were issued form our clients. When taking into account the foreign exchange rate, the price obtained must be to the benefit our client. The broker dealer will be required to comply with the requirements of best execution. The executing broker dealer may execute the order as principal or agent and may be compensated for the transaction. As a generally rule, Eight Capital does not general bulk and routes orders for execution to foreign marketplaces.
Best Execution Governance Committee
Eight Capital has established a Best Execution Governance Committee (the “Committee”) that has responsibility for this policy. The Committee is comprised of the Head of Liability Trading, The Head of Equity Capital Markets, and the Chief Compliance Officer.
The Committee will meet at least annually to review this policy and the firm’s best execution program, to ensure Eight Capital is continually acting in the customer’s best interest to obtain best execution, and to determine the effectiveness of the current policy. The Committee may meet more regularly if it is deemed necessary, or when there is a material trigger of events in the marketplace which may affect the Firm’s ability to obtain best execution for a customer order.
Events Triggering a Review of Router Preferences
Change in Regulation;
Change in existing protected or dark marketplace;
Launch of a new protected or dark marketplace;
Change in liquidity pattern of marketplace;
Change in internal processes or technology;
Change in marketplace fees or structure;
Compliance will conduct an internal review for best execution on a random sampling basis to verify whether the firm is attaining best execution for customer orders. The firm may rely on a variety of reports including but not limited to: Fidessa Analytics Report, Fidessa Hit Rate Report, SOR, and review a sample of orders, and the current market conditions at the time of order entry. The SOR setting is configured to target displayed volumes and overages based on the firm’s prioritized market venues.
In the event of circumstances beyond the Eight Capital’s control, or any issues that may limit the RRs ability to access specific marketplaces, customer orders may be directed to either the principal marketplace as circumstances dictate, and as determined at the discretion of Eight Capital.