AMP Capital Investors Limited ABN AFSL > Trade Management Policy

Transcription

1 AMP Capital Investors Limited ABN AFSL > Trade Management Policy 27 APRIL 2015

2 Contents 1. AMPCI Trade Management Policy Objective Application of this Policy Roles and responsibilities Definitions Owner of the Policy Review and compliance with the Policy References and other relevant Policies 3 2. Trade execution Deal origination and execution Dealing principles 4 3. Best execution Factors considered Cross trades Client Instructions Independent review 6 4. Trade aggregation and allocation Order Aggregation Pro-rata allocation principle: Exceptions to the Pro-Rata Allocation Method Allocation of Primary Transactions 7 5. Brokers and Counterparties approval New Broker or Counterparty Approval OTC Derivatives 5.3Credit Risk Mitigation Evaluation Event 5.5. Alternative Brokerage Arrangements 9 6. Conflicts of Interest Management 6.1 Approval and Review of CSA Payments Gifts and Entertainment Conflicts of Interest Trade Errors Definition of Trade Errors Notification and Assessment Rectification 11 // 1

3 1 AMP Capital Trade Management Policy 1.1 Objective The AMP Capital Trade Management Policy (the Policy) outlines the roles and responsibilities of employees of all entities within AMP Capital, including international offices, in regards to: > Trade execution > Best execution > Trade aggregation and allocation > Approval of brokers and counterparties > Alternative brokerage arrangements > Trade errors The Policy aims to ensure that AMP Capital meets the highest possible standards for dealing in financial instruments and acts in the best interest of its clients. 1.2 Application of this Policy The Policy applies to all employees of all entities within AMP Capital who perform any activities relating to trading. This includes our international offices which are subject to local laws or other standards. Where local requirements are more stringent than those set out in the Policy, the local legislation will prevail. 1.3 Roles and responsibilities It is the responsibility of management to make relevant staff aware of the Policy and their responsibilities under it. It is also the responsibility of management to monitor compliance with the Policy and to report any breach to the Enterprise Risk Management team as soon as identified. 1.4 Definitions > Alternative Broker Arrangement. An arrangement between a broker and an investment manager to provide research services beyond those supplied by the broker which are directly linked to trading activity. > AMP Capital. AMP Capital Investors Limited. > Broker. An individual or firm that acts as an intermediary between a buyer and seller of an asset in return for a commission or spread. > Best Execution. Refer to section 3.1. > CIO. Chief Investment Officer. > Counterparty. The other party in a financial transaction. Counterparties are used in over the counter (OTC) transactions. > ERM. The AMP Capital Enterprise Risk Management team. > Order Aggregation. Aggregating a number of like orders together into a single, larger order. This is done to ensure that clients receive equal treatment and to help reduce trade execution costs. > Order Allocation. The act of allocating trade executions between allocated funds. > Partial Fill. When a trade is executed for less than the full quantity originally requested. (See Pro-Rata Allocation Method). > Pro-rata allocation method. If an aggregated order is only partially filled, the pro-rata allocation method is used to split the executed part of the order between portfolios. This is done in ratio with the original relative order sizes whilst complying with minimum lot sizes. Refer to section > Standard Full Service Brokerage. This refers to brokers who provide research alongside execution to maximise client returns. // 2

4 Trading and dealing both refer, as synonyms, to the execution of investment decisions made by investment teams. 1.5 Owner of the Trade Management Policy The owner of the Policy is the CIO of Global Equities and Fixed Income at AMP Capital. 1.6 Review and compliance with the Policy The Policy will be reviewed as needed and at least annually to ensure it retains relevancy, is current and compliant with all applicable laws. 1.7 References and other relevant Policies > AMP Ltd Trading Policy > AMP AML/CTF and Sanctions Policy > AMP Capital Investors Chinese Walls Policy > AMP Capital Investors Personal Trading Policy > AMP Conflicts of Interest Procedures > AMP Conflicts of Interest Policy > AMP Business Integrity Policy > AMP Capital Investors Delegations of Authority // 3

5 2. Trade execution 2.1 Deal origination and execution The authority to originate and execute trades is covered by the AMP Capital Delegations of Authority available on AMP Capital s intranet, the Hub. This policy shows origination and dealing limits at various layers within the hierarchy of AMP Capital and all trades being originated or executed must follow these limits. In addition, trades may not be broken into smaller parts to avoid delegation limits. 2.2 Dealing principles The below principles must be complied with when dealing in securities: > Deals must comply with client requirements and portfolio or fund guidelines and restrictions. > All deals entered into should be dealt, allocated and recorded on the relevant, auditable electronic trading system. Any deals that must be dealt verbally or off platform must be entered into the relevant trading system as soon as practicable. Only instruments on the Approved Instruments List may be traded. > All dealing disputes must be reported to the CIO of Global Equities and Fixed Income. In addition, dealing disputes must be reported to the Enterprise Risk Management team. > Documented dealing procedures should be followed at all times. // 4

6 3. Best execution 3.1. Factors considered AMP Capital seeks to take all reasonable steps to obtain the best possible outcome for its clients when executing trades. This process forms AMP Capital s commitment to clients to provide Best Execution. In order to obtain Best Execution for clients, dealers take into account the following: > Order characteristics and portfolio manager s instructions e.g. time horizon, order duration, price limit which take into account individual client needs and performance objectives. > The nature of the instrument to be traded including factors such as market liquidity, price transparency and the possible market impact of the transaction > The use of approved brokers and counterparties (see Section 5). AMP Capital has an ongoing process to evaluate brokers and counterparties used against criteria including: > Price > Total costs and commissions related to the execution > Promptness and accuracy of execution > Quality of execution services including post-trade up to the point of trade settlement; > Past execution history > Credit-worthiness and business reputation of the broker or counterparty > Likelihood and speed of execution > Liquidity > Any other factors that may be necessary to achieve the best outcome for clients. To provide Best Execution, the dealing desk will work to ensure that transactions are addressed in timely fashion. 3.2 Cross trades On occasion, AMP Capital may wish to buy and sell the same security on a listed market on behalf of differing clients which gives rise to an on-market cross trade. Clients may prohibit the use of cross trades. In such cases the dealing system will prevent cross trades from being effected. Cross trades will only be executed on behalf of accounts which are mandated to do so and in markets where this is permissible. Examples of how cross trade opportunities may arise include: cash flows into and out of differing funds and, funds following different strategies. In such cases there should be a clear benefit to the clients on the basis that there is no market impact and no broker commission to be paid. The price used for an equity cross trade should generally be the prevailing price in the market at the time of the trade and always one which is deemed to be fair to both parties. For cross trades in unlisted markets, the price used should be the prior day s closing price or as deemed fair to both parties depending on the opacity of the market. Any such cross trades at prior day s closing price shall be instructed on the prior day s close. 3.3 Client Instructions A client may give a portfolio manager a specific instruction to execute a trade. The portfolio manager will then originate a trade for the dealing team to execute. A client s direct instructions may prevent AMP Capital following the normal processes used to gain best execution. In such an instance, a client will be deemed to have received best execution. // 5

7 3.4 Independent review Commissions paid to approved equity brokers are monitored on a daily basis by the Dealing and Exposure Management team, by Portfolio and Investment Managers on a monthly basis and twice annually by the CIO. Equity Trades Transaction cost analysis is conducted daily on all equity trades executed by the firm and reviewed by all investment team members on a daily basis and subject to further investigation on request. Quarterly reporting of all equity transaction costs is also provided by an independent third party which is made available to investment team leaders as well as Enterprise Risk Management for review. Further investigation is conducted if requested or warranted. Details of equity counterparty commissions and transaction cost analysis by portfolio are also made available to clients on request. Fixed Income Trades Fixed income trade volumes and levels are reported to the portfolio management team on a daily basis. A detailed summary of all activity by counterparty and instrument is circulated to all investment team members on a monthly basis. // 6

8 4. Trade aggregation and allocation 4.1. Order Aggregation Order aggregation is the process of aggregating a number of like orders together into a single, larger order. This is done to ensure that clients receive equal treatment and to help reduce trade execution costs. Clients may prohibit the use of order aggregation. In such cases the dealing system will prevent the order from being aggregated Pro-rata Allocation Method for Partially Executed Trades In general, partially executed trades will be allocated using the Pro-Rata Allocation Method. This means that the executed trade will be allocated to funds, pro-rated downwards in proportion with the percentage of the original aggregated order that was able to be executed. For example if half the aggregated order was able to be filled, under the Pro-Rata Allocation Method each fund would receive half their initial order. Both CRIMS and Aladdin automatically allocate the trades using the Pro-Rata Allocation Method Exceptions to the Pro-Rata Allocation Method In some instances trades may not be able to be allocated using the Pro-Rata Allocation Method these include: > Lot size restrictions: some securities can only be traded in particular lot sizes. This may limit the ability to Pro-Rate aggregated orders. > Small execution: it may be that such a small amount of an order is able to be executed in the market that the resulting allocations would not be practical or meaningful to allocate across several funds. > Cash flows and Liquidity: In some instances, the Pro-Rata Allocation Method may be unsuitable to use due to fund cash flows. > Minimum Parcel Size: Many fixed income assets are only able to be settled in particular parcel sizes due to market rules and restrictions. In these instances, the executed amount will be split as close to the Pro-Rata Method as possible. AMP Capital will ensure that transactions are fairly allocated to each fund and portfolio at the executed price Allocation of Primary Transactions Primary market transactions include Initial Public Offerings, Placements and Underwriting deals. Subject to the exceptions set out in section all deals are allocated pro rata according to an aggregated allocation table determined on a pre-trade basis. Where the deal is an entitlement issue or similar where it is the intention that existing holders should not be diluted, then the shares to which an existing shareholder is entitled should be treated as a minimum allocation if so bid for. // 7

9 5. Brokers and Counterparties approval 5.1. New Broker or Counterparty Approval The new broker or counterparty approval process is a key means for AMP Capital to manage risk and allow for the adherence to Best Execution as set out in section 3. > New brokers are proposed by investment team members and then reviewed and approved by: The Head of Multi- Strategy, Head of Fundamental Equities or Head of Fixed Interest as appropriate and > The Head of the Dealing and Exposure Management Team Relevant counterparty analysis and recommendation information is detailed and retained in the new counterparty set up form. Once approved, the broker or counterparty is set up in the trading system by the Data Management Team and any dealings can only be commenced with new brokers once set-up has been confirmed by the Data Management Team. The Approved Brokers List is maintained within the Charles River and Aladdin order management systems and is reviewed on an annual basis by the Head of the Dealing and Exposure Management. The counterparty approval process is necessary for AMP Capital to ensure Best Execution. This process considers the following: > Cost minimisation > Likelihood of execution > Efficiency of settlement, including settlement risk > Credit risk > Reputational risk > Regulatory Risk 5.2. OTC Derivatives (Non-Cleared) Where it is envisaged that the counterparty may be used to conduct non-cleared OTC derivative transactions, there will be a credit risk against the counterparty. These transactions include: FX spot and forwards FX options FX interest rate swaps Interest rate and inflation swaps and FRAs Bond options CDS and CDS Indices Equity and equity index swaps and options Counterparties are approved by the investment team leader with consideration given to the following criteria: > Background analysis as detailed in New Counterparty Set up Form > Ratings agency reports or a summary of key financials. In general, trading should be conducted with a counterparty rated by S&P or Moody s above A- or settlement should be via a CSD. An International Swaps and Derivatives Association (ISDA) Agreement must either already be in place or put in place before derivatives trading can commence. This Agreement should contain a Credit Support Annex if collateral is to be posted. The list of approved counterparties is reviewed semi-annually by investment teams. Commissions paid to counterparties are reviewed semi-annually by investment teams Credit Risk Mitigation // 8

10 For uncollateralised FX spot and forwards activity with a maximum maturity of 6 months, trading should only be conducted with counterparties with a superior ability to repay. No new trading should be conducted with counterparties rated long term with Moody s below A3 or with S&P below A-. For collateralised trading activity under a CSA, the key credit support is the collateral held. Nevertheless trading should be done with counterparties rated long term with Moody s Baa1 or higher or with S&P BBB+ or higher. No trading should be conducted, except with approval of the Head of Fixed Income, where a Sell investment opinion has been awarded by the fixed income analyst for the particular bank. Each counterparty for OTC trading should possess its own rating or its guarantor should be rated explicitly. Operating banking entities within financial conglomerates are preferred as counterparties over less capitalised capital markets subsidiaries Evaluation Event If the credit quality of an active counterparty falls below the thresholds in (5.3) or the counterparty is placed on negative watch or outlook which may result in the lowering of the rating below the threshold, it is deemed that an evaluation event has occurred. An evaluation event results in a review of outstanding exposures to the counterparty and the circumstances of the credit quality decline. The information will be reviewed by the Head of Fixed Income, a Senior Portfolio Manager and a member of the legal team. The actions taken or recommended will be incorporated on the List of AMP Capital ISDA s owned and maintained by the Legal team and distributed on a regular basis. These actions may include a temporary cessation of trading and or a partial or complete unwind of existing open positions. Until a counterparty is upgraded to the threshold or the negative watch or outlook is resolved, a review of the counterparty will be conducted on a regular ongoing basis. 5.4 Ongoing Monitoring AMP Capital has an ongoing process to evaluate brokers and counterparties as outlined in section Alternative Brokerage Arrangements AMP Capital uses Alternative Brokerage Arrangements for two primary purposes: > To pay for specialist research which enhances investment outcomes > To fulfil Best Execution obligations AMP Capital has an Alternative Brokerage Arrangement in place known as a Commission Sharing Agreement (CSA). A Commission Sharing Agreement is an agreement between an asset manager and a broker or group of brokers. The concept which underlies a CSA is that broker commissions can be split into 2 parts: trade execution and research. It allows the part of broker commissions which are payable for research to be used to pay to a third party specialist research provider rather than just for research from that broker. This research must be original thought that adds value to investment or trading decisions. The research portion of broker commissions are retained in a pool administered by the CSA provider and disbursed according to research targets determined via bi-annual voting by the investment team. This policy has been formed taking into consideration the regulator s guidance in all the major jurisdictions in which the firm operates including Australia, China, Hong Kong, Luxembourg, Japan, New Zealand, the UK and the USA. AMP Capital has a fiduciary and statutory duty to act in the best interests of their investors in respect of investment decisions made on their Investor s behalf. Therefore, no client should expect to be disadvantaged by any Alternative Brokerage Arrangements. Moreover, AMP Capital will always seek to obtain best execution, irrespective of any Brokerage Arrangements they enter into. // 9

11 Alternative Brokerage Arrangements (including commission sharing agreements) may only ever be used where AMP Capital is provided with execution and/or research goods and services which are directly linked to improving client returns. In order for a service to be considered as execution it should be: > Linked to the arranging and conclusion of a specific investment transaction (or series of related transactions) > Provided between the point at which the investment manager makes an investment or trading decision and the point at which the investment transaction (or series of related transactions) is concluded. In order for goods and services to be considered research and thus be eligible for inclusion under the Alternative Brokerage Arrangements they should: > Be capable of adding value to the investment or trading decisions by providing new insights that inform the investment manager when making such decisions about its customers' portfolios > Represent original thought, in the critical and careful consideration and assessment of new and existing facts, and does not merely repeat or repackage what has been presented before > Have intellectual rigour, not merely stating what is commonplace or self-evident > Involve analysis or manipulation of data to reach meaningful conclusions Approval and Review of CSA Payments Intended research providers and payments resulting from the bi-annual review process described in section 5.2 above are reviewed and approved by the Head of Dealing and Exposure Management along with the Head of Multi Strategy or Fundamental Equities as appropriate. The Head of Dealing and Exposure Management is authorised to make the appropriate payment instructions to the CSA Administrator. The Global Equities and Fixed Income Leadership Team reviews and conducts independent oversight of all CSA payments on a quarterly basis to ensure all payments comply with eligibility criteria as set out in Section 5.4. The GEFI LT also oversees any materiality of commission balances carried over to the next period Gifts and Entertainment Any broker related gifts and entertainment are governed by the AMP Business Integrity Policy and the AMP Conflicts of Interest Policy and are recorded in separate registers centrally managed by the Enterprise Risk Management team Conflicts of Interest Any conflicts of interests that may arise in respect of broker selection will be managed in accordance with the AMP Conflicts of Interest Policy. // 10

12 6. Trade Errors AMP Capital must act in the best interests of clients and owes a duty of care when placing trades Definition of Trade Errors Trade errors are defined as, but not limited to: > Unauthorised trade. A trade in securities in which the fund may not invest. > Incorrect trade. Failing to place a trade in accordance with the instructions given. > Incorrect Allocations. Allocating a trade to the wrong fund or account. > Delay. Failing to execute or process a trade in a timely fashion. Trade errors can also include cash management errors (resulting in an overdraft on an account) and operational errors (such as corporate actions). Trade errors are not: > Errors of judgement. An investment decision in good faith that does not achieve the desired outcome is not necessarily a trade error. Clerical mistakes that only affect the record-keeping requirement are generally not considered trade errors unless they result in a direct financial loss to a client. > Errors not transacted. Errors which are found and corrected prior to trade execution. Trade errors also do not include events that are outside of AMP Capital s controls (such as system failure or delay, severe weather or suspension of trading) Notification and Assessment Any actual or suspected trade errors must be notified as soon as possible to the Head of the Dealing and Exposure Management and to Enterprise Risk Management (ERM). A trade error should be corrected as soon as possible to minimise the risk of loss. When a trade error is assessed it should be determined: > The cause and source of the error > The impact of the error Impacted clients should be notified in accordance with the relevant IMA or agreement. If an error is found to be a trade error it must be logged as an incident in the Incident Management Database following the procedures in the AMP Enterprise Risk Management Handbook. Incidents are handled in accordance with the Incident Management Process which involves scrutiny by the Incident Working Group with the following being determined: > Remediation of controls to prevent repetition > Insurance notification > Senior Management Reporting Client compensations are assessed in line with the AMP Capital Compensation Guidelines for Trade Errors. // 11

13 . Mark Beardow Chief Investment Officer Global Equities and Fixed Income, and AMP Life // 12