BROKER-DEALER REQUEST FOR INFORMATION

Transcription

1 BROKER-DEALER REQUEST FOR INFORMATION March South Lake Avenue, Suite 750 Pasadena, California Telephone: Facsimile: West Monroe Street, Suite 3125 Chicago, Illinois Telephone: Facsimile:

2 March 2011 Table of Contents COVERLETTER:.. 3 FUND DETAILS:. 4 RFI SECTION 1: Firm s general information 6 RFI SECTION 2: Compliance and Regulatory RFI SECTION 3: Trading. 8 RFI SECTION 4: Operations 9 CLIENT LIST:.. 10

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4 Administration LCP will create a general RFP and systematically contact broker-dealers identified as minority. LCP maintains a client-provided MWDBVE universe and will use this as a starting point. The Fund will require the firm s compliance department to actively review and approve broker-dealers. LCP will be conscious of the added workload The Fund will require and will adjust accordingly. The Brokerage Committee will recommend to the Management Committee how many commission dollars to allocate to The Fund. These dollars will be used to calculate how many trades per quarter are available to eligible broker-dealers. Then LCP will determine how many trades constitute an acceptable sample to measure best execution. In the absence of this data, LCP will cycle through five new broker-dealers per period. Broker-dealers who successfully meet the minimum standards will be compared against all existing minority broker-dealers. The top performing broker-dealer during the review period will replace the worst performing current broker-dealer at the beginning of the next period. Broker-dealers lacking a minimum trading, operations, and technology infrastructure are ineligible for The Fund. At a minimum every execution-only broker-dealer will maintain its own trading desk, backoffice, Omgeo suite (Alert and Oasys), and infrastructure to add FIX connectivity. Also, each broker-dealer must satisfy at least three existing client mandates, meaning they must be approved by at least three distinctly separate LCP clients. These requirements are in addition to the existing compliance controls. These minimum requirements assure that our trading partners can match our capabilities and can interface seamlessly with our trading and operations departments. Compliance may make adjustments to the minimum requirements at its discretion in an effort to protect the firm from material loss.

5 Benchmarks Trading Benchmarks All broker-dealers shall be expected to outperform a VWAP less 12 basis points benchmark averaged over a minimum of five orders on a broker-dealer specific trade weighted basis. For example, if the VWAP of ORCL over the life of the order is $ , the broker-dealer will be expected to be no worse than $ , the difference between the VWAP and 12 basis points ($0.0223). Failure to meet the minimum expectation is cause for removal as a LCP active broker-dealer. Settlement Benchmarks Broker-dealers shall maintain a satisfactory settlement ratio as determined by LCP operations in conjunction with the Trade Support Issues log. Broker-dealers who consistently fail to settle trades on a T+3 standard or who have been documented to be unresponsive to LCP efforts to resolve outstanding issues will be removed as a LCP active broker-dealer. Removal from Fund Broker-dealers who fail to meet the minimum expectation will be removed as a LCP active broker-dealer. These broker-dealers will receive a formal letter explaining the rationale behind the removal. The broker-dealer may reapply to The Fund after one year. To reapply the broker-dealer will need to send a written explanation of the steps taken to resolve the issues that resulted in their removal. A broker-dealer who has been removed twice from The Fund will not be able to reapply. Only a corporate reorganization will merit potential reinstatement into The Fund process.

6 FIRM S GENERAL INFORMATION: 1. Please provide a history of your firm. 2. Where is your firm headquartered? Are there other locations? If yes, where are they and which location would cover the account? 3. Does your firm qualify as a certified Minority, Woman, or Disabled-Veteran Owned Business? If yes, identify all certifications and attach copies, in alphabetical order by plan sponsor, of the approved lists your firm is on. 4. Please explain your firm s current ownership structure. 5. Has there been or are you planning any changes in structure or strategy? If so, explain. 6. Indicate the number of traders, salespeople, operations, and research staff employed by the firm. 7. Please provide a brief biography, including securities licenses, of the principals and personnel assigned to cover the account. COMPLIANCE AND REGULATORY: 1. Please provide current documentation for the following items: a. Current net capital. b. FOCUS report. c. Audited financial statements. d. Form BD. e. SEC Rule 606 filing. 2. Business Continuity Plan. a. Marketing materials, detailing your firm s capabilities and services (including research if applicable). 3. Will you provide quarterly Focus reports on an ongoing basis? 4. Has your firm been sanctioned, fined, or otherwise cited by the SEC, FINRA or other regulatory body in the past three years? If yes, explain. 5. Have any of the firm s senior managers or persons who will be responsible for our relationship been sanctioned, fined by the SEC, FINRA or other regulatory body? If yes, explain.

7 COMPLIANCE AND REGULATORY (continued): 5. Has your firm consistently complied with the Federal Reserve Bank s capital adequacy guidelines or the federal Net Capital Rule requirements? 6. By what factor does your firm presently exceed the capital adequacy guidelines? 7. Is there any arbitration or legal claims against your firm? If yes, explain. 8. Does your firm have Professional Liability Insurance? 9. If you are an introducing broker, please provide a copy of your firm s Fully Disclosed Clearing Agreement. 10. Discuss any other ways that your firm s trades might be guaranteed or insured. 11. Does your firm have any public or corporate pension plans? If so, explain. 12. Does your firm provide Soft Dollar or CSA services? 13. Has your firm publicly adopted the Investment Protection Principles?

8 TRADING: 1. What is your core competency i.e., equity, fixed income, domestic, international, underwriting etc. 2. Describe your execution capabilities and expertise. 3. Has your firm been publicly recognized for any of its services? Please include any supporting documents. 4. What percent of your firm s revenue comes from domestic equity trading? a. Please provide a pie chart detailing all revenue generating areas and their percent contribution to total revenue. 5. Please describe in detail your firm s experience and ability to trade International. 6. What was your firm s largest single stock domestic equity trade last year, in terms of shares traded and commission generated? 7. Quantify the amount of equity trading that your firm executed for clients in the past year. 8. Is your firm a member of any exchange? 9. Describe how you receive trade orders, including but not limited to FIX connectivity. 10. Detail your order management and execution technology. 11. How do you measure your trade execution for Best Execution analysis? Please provide a sample report. 12. What systems does your firm have in-house for executing orders? Identify specific crossing networks, algorithms, and/or dark pools that are utilized for equity trading, and how you access them. 13. Does your firm commit capital to facilitate trades? If so, what are the circumstances and what are your constraints? 14. Does your firm have access any other systems or exchanges via third party relationships (i.e., notable trading relationships, clearing broker, white labeled product offerings, etc.)? 15. Describe your firm s equity research and/or other similar product offerings. 16. Once a trade is received, what is the average time to load into your trading system and execute? 17. What is your firm s average negotiated commission rate for domestic equities? International equities? 18. Does your firm have any of the following relationships with other brokers? (execution, introducing, clearing, give-ups, etc.) 19. Do you have ETF capability or do you outsource? Who are the authorized participants?

9 OPERATIONS: 1. Are you self clearing? If no, how does the firm settle and clear domestic and or International trades? How many clearing firms do you use? How many employees are in your operations department? 2. What is your firm s DTC number? What is your firm s Broker ID Number? 3. Can you offer shortened or extended settlements? 4. Does the firm have OASYS, OASYS Global, Euro Clear, or others? Specify. 5. How often are your client s account instructions updated (i.e., automatically/electronically, quarterly, annually, or upon notification)? 6. Please provide your firm s trading and clearing instructions. If you are an introducing broker, please provide a contact at your clearing agent. 7. Do you measure operational performance, i.e,. settlement rate, number of failed trades annually, buy-ins performed? 8. Detail your process to prevent and resolve buy-ins?

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