Performing a Rebalance. Enhanced Trading & Rebalancing

Transcription

1 Performing a Rebalance Enhanced Trading & Rebalancing

2 Performing a Rebalance Enhanced Trading & Rebalancing 2 Performing a Rebalance The Rebalancer tool in Enhanced Trading enables you to rebalance accounts using models. The tool shows account holdings versus model targets, and proposes trades based on drift. After you create models and assign them to accounts, use the Rebalancer to see how accounts compare to the respective models. Step-by-Step 1. To access the Rebalancer tool from the BranchNet main menu, select Trading Advisory Rebalancer from the BranchNet menu. or Select Trade Trading Tools from the menu, and then select Rebalancer in the left pane. (For more information, see Accessing Enhanced Trading.) Tip! Use the Recent Rebalance Scenarios section to view all scenarios created by you throughout the day. For scenarios with a complete or verified status, you can select the magnifying glass icon to re-launch the scenario. The system will check for account status changes, new orders, recent executions, new/modified transactions and new pending cash entries that may impact the results of the rebalance. For accounts in the scenario not impacted, the system will navigate you to the proposed trades to review. 2. Select Edit to verify, and if necessary, modify the list of accounts that make up the current Account Set. (For more information, see Working with Account Sets.) 3. Choose a Rebalance Type. (See below.) Your choices are: - Sleeve Rebalance A sleeve rebalance will create security level trades to bring securities in line with their respective model targets within each selected sleeve. Use this option when you are rebalancing accts attached to a sleeve model. - Strategy Rebalance A strategy rebalance will analyze the total value of each sleeve and create inter-sleeve transfers to bring each sleeve s value in line with its respective strategy model target.. Use this option when you are rebalancing accts attached to a strategy model. 4. Select Create New Rebalance Scenario.

3 Performing a Rebalance Enhanced Trading & Rebalancing 3 5. Next, the system displays rebalance options corresponding to the Rebalance Type you select. Complete the Rebalance Method, Rebalance Criteria and Model Options as appropriate. (For more information, see Rebalance Type: Sleeve Rebalance and Rebalance Type: Strategy Rebalance.) The screen image below is an example of the rebalance options when you select Sleeve Rebalance. Tip! Click on any question mark icons to view corresponding online help. 6. If needed, set or edit trade parameters. - To edit trade parameters for this and all other trading tools, select Default Trade Preference. (For more information, see Trading Preferences.) - To edit trade parameters for this scenario only, make selections in the Rebalance Preferences section. (For more information, see Setting Rebalance Preferences.) 7. Select Run Rebalancer. The Rebalancer process runs in the background and does not require you to remain on the page. 8. (Optional) To go back to Rebalancer, select Return to Rebalancer in the message box.

4 Performing a Rebalance Enhanced Trading & Rebalancing 4 9. Upon completion of the scenario, the system takes you to the Preview Generated Orders page. (See below.) This page includes a summary toolbar across the top as well as an account level summary with the results of the rebalancing scenario. The accounts will be grouped into two sections: Accounts Traded and Accounts Not Traded. 10. Select the magnifying glass icon next to the account to view proposed trades (as shown in the example below); or, select the X icon to delete the trades for the corresponding account. At this point, be sure to review proposed actions, notifications, and proposed valid to ensure the order is correct. 11. If you are satisfied with the proposed trades for all accounts, select <<Back (to activate the Generate Orders button), and then select Generate Orders. (For more information, see Previewing and Managing Orders.)

5 Performing a Rebalance Enhanced Trading & Rebalancing 5 Important! Carefully review order details in the Preview Generated Orders screen, and when ready, select Generate Orders. At that point, the Modify Scenario Details screen opens. You can now Modify, Verify and Release orders in the Order Management screen for final submission. If you do not complete these steps, your trades will not be submitted. Rebalance Type: Sleeve Rebalance When you create a rebalancing scenario, you must select either of two rebalance types Sleeve Rebalance or Strategy Rebalance. A sleeve rebalance will create security level trades to bring securities in line with their respective model targets within each selected sleeve. A strategy rebalance will analyze the total value of each sleeve and create inter-sleeve transfers to bring each sleeve s value in line with its respective strategy model target. To set the options associated with Sleeve Rebalance, refer to the steps and descriptions below. To set the options associated with Strategy Rebalance, see Rebalance Type: Strategy Rebalance. Step-by-Step 1. Select a Rebalance Method as presented in the corresponding drop-down. A Security Level rebalance means that the Rebalancer will use security level model targets to bring the account in line with the model by creating trades that bring securities to their respective model targets. In addition, note the following: - If you select Security Level - All Securities, all securities in the selected sleeves will be rebalanced to each security s model target. - If you select Security Level Minimize Trade, the Rebalancer will attempt to minimize trades by targeting only securities that are drifting outside of their drift tolerance defined in their respective models. Securities within tolerance may also be traded as needed to leave cash within tolerance.

6 Performing a Rebalance Enhanced Trading & Rebalancing 6 An Asset Class Level rebalance means that the Rebalancer will use Asset Class level model targets to bring the account in balance to the asset class level by trading the minimum number of securities in order to align with their respective model targets. The goal of this rebalance method is for the account to maintain a defined Asset Class distribution regardless of the individual security drift levels. In addition, note the following: - If you select Asset Class Level Full, the Rebalancer will bring all Asset Classes to target as defined in the selected model by trading the minimum number of securities as possible. - If you select Asset Class Level Minimize Trades, the Rebalancer will target only Asset Classes that are drifting out of their drift tolerance defined in the selected model by trading the minimum number of securities as possible. Securities in Asset Classes within tolerance may also be traded as needed to leave cash within tolerance. An Asset Type Level rebalance means that the Rebalancer will use Asset Type level model targets to bring the account in balance to the asset type level by trading the minimum number of securities in order to align with their respective model targets. The goal of this rebalance method is for the account to maintain a defined Asset Type distribution regardless of the individual security drift levels. In addition, note the following: - If you select Asset Type Level Full, the Rebalancer will bring all Asset Types to target as defined in the selected model by trading the minimum number of securities as possible. - If you select Asset Type Level Minimize Trades, the Rebalancer will target only Asset Types that are drifting out of their drift tolerance defined in the selected model by trading the minimum number of securities as possible. Securities in Asset Types within tolerance may also be traded as needed to leave cash within tolerance. A Cash Rebalance means that the Rebalancer will create purchases to either invest cash (if cash is overweight) or create sells to raise cash (if cash is underweight). The Rebalancer uses the cash target in the associated model to determine how much cash to invest or raise. While using these rebalance methods the tool will create only buys or only sells. In addition, note the following: - If you select Cash Rebalance using Model Targets, the Rebalancer will bring cash to its model target by buying or selling securities to their model target in order of their current drift %. The minimum number of trades will be created in order to bring cash in line with its model target. Accounts currently overweight in cash will create only Buys and accounts currently underweight in cash will create only Sells. - If you select Cash Rebalance using Model Targets Buys Only, the Rebalancer will do the same as Cash Rebalance using Model Targets except only accounts overweight in cash will be traded. - If you select Cash Rebalance using Model Targets Sells Only, the Rebalancer will do the same as Cash Rebalance using Model Targets except only accounts underweight in cash will be traded.

7 Performing a Rebalance Enhanced Trading & Rebalancing 7 - If you choose Cash Rebalance using Current Allocation, the Rebalancer will attempt to bring cash to its model target by buying or selling pro-rata across the current security allocation in the sleeve. In this method only cash will be traded to its model target, all other securities will maintain their current allocation. - If you choose Cash Rebalance using Current Allocation Buys Only, the Rebalancer will do the same as Cash Rebalance using Current Allocation except only accounts overweight in cash will be traded. - If you choose Cash Rebalance using Current Allocation Sells Only, the Rebalancer will do the same as Cash Rebalance using Current Allocation except only accounts underweight in cash will be traded. 2. In the Rebalance Criteria section, select Rebalance All Sleeves in Current Account Set or Select Specific Sleeve to Rebalance. If any accounts within your account set have multiple sleeves and you would prefer not to rebalance all sleeves at this time, choose Select Specific Sleeves to Rebalance. This option lets you select the sleeves you want to rebalance. 3. Within the rebalance criteria section, you must also select your drift option. This option enables you to configure the Rebalancer by way of the account s drift level to determine whether an account should be included or not included in the rebalance scenario. If you select Rebalance All Select Sleeves, all sleeves will be rebalanced. If you select Rebalance Only Sleeves with Security Drift, the Rebalancer will only include an account if the sleeve has at least one security out of tolerance, one asset class out of tolerance, one asset type out of tolerance, or the cash is out of tolerance. 4. In the model options section, choose a model option. (See below.) The model options dictate which option will be used by the Rebalancer as follows: - If you select Use Account s Assigned Model, the Rebalancer will use the model currently assigned to the account.

8 Performing a Rebalance Enhanced Trading & Rebalancing 8 - If you select Override Assigned Model Select a Model, you can search for and select a model to use for this rebalance scenario only. This selection will not affect the account s current model association and may cause dramatic changes in the account s current allocation. This option should be used with extreme care. - If you select Override Assigned Model Use Account as Model, you can search for and select an account to use as the model for this rebalance scenario only. This selection will not affect the account s current model association and may cause dramatic changes in the account s current allocation. This option should be used with extreme care.. Rebalance Type: Strategy Rebalance When you create a rebalancing scenario, you must select either of two rebalance types Sleeve Rebalance or Strategy Rebalance. A sleeve rebalance will create security level trades to bring securities in line with their respective model targets within each selected sleeve. A strategy rebalance will analyze the total value of each sleeve and create inter-sleeve transfers to bring each sleeve s value in line with its respective strategy model target. To set the options associated with a Strategy Rebalance, refer to the steps and descriptions below. To set the options associated with a Sleeve Rebalance, see Rebalance Type: Sleeve Rebalance. Step-by-Step 1. Select a Sleeve Redistribution Method as presented in the corresponding drop-down. A Strategy Level redistribution means that the Rebalancer will use Strategy level model targets to bring sleeves in line with the model targets by creating inter-sleeve cash flows out of overweight sleeves into underweight sleeves. In addition, note the following: - Selecting Strategy Level All Sleeves will cause money to be transferred in or out of all sleeves in the selected accounts to bring each sleeve s total value in line with the account s Strategy Model.

9 Performing a Rebalance Enhanced Trading & Rebalancing 9 - Selecting Strategy Level Optimized instructs the Rebalancer to target only sleeves that are currently drifting outside of their drift tolerance as defined in the associated Strategy model. Sleeves drifting outside of their drift tolerance will have value transferred in or out to bring the sleeve s total value in line with the account s Strategy Model. Sleeves within tolerance may also be affected as needed to balance the total inter-sleeve transfers. An Asset Class Level redistribution means that the Rebalancer will use Asset Class Level model targets to bring the account in balance at the asset class level by creating inter-sleeve cash flows in/out of the minimum number of sleeves. The goal of this rebalance method is for the account to maintain a defined Asset Class distribution regardless of the individual sleeve level drift. Keep in mind that this rebalance method will only differ from a Strategy Level rebalance in accounts that have more than one sleeve assigned to a particular asset class. In addition, note the following: - Selecting Asset Class Level Full will have the Rebalancer bring all Asset Classes to target as defined in the selected Strategy model by moving money from one sleeve to another within each Asset Class. - Selecting Asset Class Level Optimized will have the Rebalancer target only Asset Classes that are drifting out of their drift tolerance defined in the associated strategy model by moving money from one sleeve to another within those asset classes. Sleeves in Asset Classes within tolerance may also be affected as needed to even out the total inter-sleeve transfers. An Asset Type Level redistribution means that the Rebalancer will use Asset Type level model targets to bring account in balance at the asset class level by creating inter-sleeve cash flows in or out of the minimum number of sleeves. The goal of this rebalance method is for the account to maintain a defined Asset Types distribution regardless of the individual sleeve level drift. In addition, note the following: - Selecting An Asset Type Level Full will have the Rebalancer bring all Asset Types to target as defined in the selected Strategy model by moving money from one sleeve to another within each Asset Type. - Selecting an Asset Type Level Optimized will have the Rebalancer target only Asset Types that are drifting out of their drift tolerance defined in the associated strategy model by moving money from one sleeve to another within those asset types. Sleeves in Asset Types within tolerance may also be affected as needed to even out the total inter-sleeve transfers. 2. Select a Sleeve Rebalance Method as presented in the corresponding drop-down.

10 Performing a Rebalance Enhanced Trading & Rebalancing 10 The Sleeve Rebalance Method tells the Rebalancer how you want to handle the sleeves that will be getting rebalanced based on the redistribution method you selected above. Your options are as follows: - Security Level All Securities All securities in the selected sleeves will be rebalanced to each security s model target. - Security Level Minimize Trades Rebalancer will attempt to minimize trades by targeting only securities that are drifting outside of their drift tolerance defined in their respective model. Securities within tolerance may also be traded as needed to leave cash within tolerance. - Cash Rebalance using Model Targets Buys Only Rebalancer will attempt to bring cash to its model target by buying securities to their model target in order of their current drift %. The minimum number of trades will be created in order to bring cash in line with its model target. Accounts currently overweight in cash will create only Buys. Accounts currently underweight in cash will have no action taken. - Cash Rebalance using Model Targets Sells Only Rebalancer will attempt to bring cash to its model target by selling securities to their model target in order of their current drift %. The minimum number of trades will be created in order to bring cash in line with its model target. Accounts currently underweight in cash will create only Sells. Accounts currently overweight in cash will have no action taken. - Cash Rebalance using Current Allocation* Rebalancer will attempt to bring cash to its model target by buying or selling pro-rata across the current security allocation in the sleeve. In this method only cash will be traded to its model target, all other securities will maintain their current allocation. - Cash Rebalance using Current Allocation Buys Only* Rebalancer will attempt to bring cash to its model target by buying pro-rata across the current security allocation in the sleeve. In this method only cash will be traded to its model target, all other securities will maintain their current allocation. - Cash Rebalance using Current Allocation Sells Only* Rebalancer will attempt to bring cash to its model target by selling pro-rata across the current security allocation in the sleeve. In this method only cash will be traded to its model target, all other securities will maintain their current allocation. *If you select any one of these methods, the following options are displayed: - Use Model Cash Target % (Default) If selected, the Rebalancer sets the target for cash to the defined target in the sleeve s adjusted model most closely resembling the current behavior of the tool. - Use Account Cash % prior to Pending Withdrawals/Deposits If selected, the Rebalancer sets the target for cash to: (Sleeve Cash Balance + Open Orders Pending Withdrawal/Deposits) / Sleeve Market Value where Pending Withdrawals/Deposits = Any Entries Posted within the Cash Management Tool

11 Performing a Rebalance Enhanced Trading & Rebalancing 11 - Define Resulting Cash % If selected, the Rebalancer sets the target for cash equal to the value you enter. You may enter a percentage from 0.00% to %. 3. Set Rebalance Criteria. In the Rebalance Criteria section, choose a Sleeve Selection option* as follows - Include All Sleeves All sleeves in the account will be considered and rebalanced. - Select Specific Sleeves to Include* User will be asked to specify which sleeves to include in this rebalance. - Select Specific Sleeves to Exclude* User will be asked to specify which sleeves to exclude in this rebalance. *Note that Unassociated Sleeve will always be included in any Strategy Rebalance. Also, if you select Select Specific Sleeves to Include or Select Specific Sleeves to Exclude options, search for and select sleeves to include or exclude. The Drift option within the Rebalance Criteria box defaults to Rebalance All Accounts. You can change the option to include Rebalance Only Sleeves with Drift. This will cause a rebalance only if one sleeve is out of tolerance, one asset class is out of tolerance, or one asset type is out of tolerance. Setting Rebalance and Trade to Target Preferences Note. In the Rebalance Preferences section of the Create New Rebalance Scenario window, you may view and modify settings for the current scenario. The Rebalance Preference section contains trade preferences and rebalance-specific options that are used by the rebalancing and order creation processes. Likewise, in the Trade to Target tool, you can modify the settings for the current scenario in the Trade Preferences section of the Create New Trade to Target Scenario window. By default these options are populated with your Default Trade Preferences. Also note that the selections or modification you make here will not be saved as default trade preferences. Changes to the default trade preference can be made by selecting the Default Trade Preferences button at the top of the page. Keep in mind that any changes you make to the default trade preferences will apply to all of the trading tools, not just the Rebalancer. The options associated with the tabs that make up the section are described next.

12 Performing a Rebalance Enhanced Trading & Rebalancing 12 Equity/ETF In the Equity/ETF tab, select Exclude Equity if you want to exclude equity and ETP positions from the rebalance scenario from the accounts holdings and models. Trade Minimums provide you with options that will define the minimum threshold for a trade to be created by the Rebalancer. These minimums only apply to trades created by the initial rebalance and not to any subsequent modifications made by the user on the Proposed Trades page. Mutual Fund Once the Equity tab is complete, select the Mutual Fund tab and complete the following criteria. You can exclude mutual fund positions from the rebalance scenario for both the accounts holdings and models by checking the Exclude Mutual Fund box. Trade Minimums provide you with options that will define the minimum threshold for a trade to be created by the Rebalancer. These minimums only apply to trades created by the initial rebalance and not to any subsequent modifications made by the user on the Proposed Trades page. For a trade to be valid it must exceed the minimum settings set for Account($) and % of Account Value. Utilize the Create Trade In section to specify how you d like to create mutual fund trades, either in Dollars or Shares. (Note that all redemptions for greater than 90% of an existing position will be defaulted to shares in order to protect against selling more than the account s current holding in the event of large NAV changes for the specified fund.)

13 Performing a Rebalance Enhanced Trading & Rebalancing 13 Utilize the Dividend/Capital Gains Instructions section to specify an account s dividend and/or capital gain payments. Please note that these instructions can only be set for initial purchases; all subsequent purchases will use the existing position's instructions. Any changes to these instructions after the initial purchase must be done via BranchNet. The Account Type section allows you to specify your preference for how trades are created in Margin accounts. For purchases, you have the ability to indicate if you d like your purchase done in the cash account or margin account. For sells, you have the ability to indicate if you d like the system to sell the call position or margin position first. Tax Awareness Once the Mutual Fund tab is complete, select the Tax Awareness tab. The Tax Awareness tab gives you the ability to set realized gain/loss behavior. As part of the trade creation process, the estimated realized Gain/Loss is calculated for all sells using the account s defined Tax Lot Relief method. This setting allows you to specify how you want the system to behave when encountering each G/L term/type in a taxable account. If you select Allow, no changes will be made to the proposed trade. If you select Flag, the proposed trade will be flagged on the Proposed Trades screen for your review. If you select Prevent, the proposed trade will be deemed invalid and any buys in the account will be pro-rated down to account for the lack of proceeds.

14 Performing a Rebalance Enhanced Trading & Rebalancing 14 Restrictions Once the Tax Awareness tab is complete, select the Restrictions tab. (See below.) The Restrictions tab lets you set the buy restriction distribution method and which security types and/or symbols to exclude. Begin by indicating your Buy Restriction Distribution Method. This setting instructs the Rebalancer how to behave when it encounters a buy restriction of a model security. The possible options are: Use Model Setting which will default to the behavior defined by the owner of the respective model. This is the behavior used when calculating drift on the account on a daily basis. Override Model Setting which will override the setting defined by the model. (If you select an option that is different from the model s setting, the account s rebalance results may differ from previously rebalance scenarios and drift statistics.) Prorate which will cause the funds to be distributed across the remainder of the model securities prorata according to each security s model weighting. Evenly which will cause the allocation of the restricted security to be distributed across the remainder of the model securities evenly. Leave in Cash which will cause the cash to be distributed solely to the Cash position in the model. After you select the Buy Restriction Distribution Method, indicate which security types you want to Exclude by Security Type. Each security type you select will be removed from both the model and the account, and the remainder of the account/model will be rebalanced as if those holdings are not held in the account. Please note that if you do not have entitlements to trade a specific security type it will be excluded by default.

15 Performing a Rebalance Enhanced Trading & Rebalancing 15 Next, indicate any securities you d like to exclude by entering the symbol in the Exclude by Ticker/CUSIP field. The selections you make will be removed from both the model and the account and the remainder of the account/model will be rebalanced as if those holdings are not held in the account. Advanced (Rebalancer Only) Once the Restrictions tab is complete, select the Advanced tab. (See below.) If a block trade was partially executed, you may select an Allocation Method Prorata or Random. One way to avoid multiple transaction fees would be to process allocations for partial executions randomly instead of pro-rata. By randomly processing allocations each client account will only receive a single, full allocation for block orders executed over multiple days.