Conflicts of Interest

Transcription

1 Conflicts of Interest Issued by: Vantage Capital Markets LLP (VCM) Compliance Scope Firms are required to manage conflicts of interest fairly, both between itself and its clients and between clients and another client. The firm therefore has a duty to ensure that it has appropriate arrangements in place to identify and manage conflicts that may arise between VCM and its clients. This policy and procedure sets out the firm s approach to understanding and managing conflicts of interest, as well as the expectations it shall place upon all members and employees in this regard. This policy and procedure shall seek to (a) identify circumstances which may give rise to conflicts of interest entailing a material risk of damage to clients interests, (b) establish appropriate procedures and systems to manage those conflicts, and (c) ensure the maintenance of such procedures and systems in an effort to prevent actual damage to clients interests through conflicts identified. Regulatory & Legal background Financial Services and Markets Act 2000 Markets in Financial Instruments Directive (MiFID) Financial Services Authority (FSA) sourcebook Principles for Business (PRIN ) Financial Services Authority (FSA) sourcebook SYSC 10 Financial Services Authority (FSA) sourcebook APER 2.1 Policy It is important at the outset to define and understand what a conflict of interest is in this context. A conflict of interest may arise in any area of VCM s business in the course of providing its clients with a service where VCM (or another client for whom VCM is acting) benefits whilst potentially and materially damaging (financially or otherwise) another client to which VCM also owes a duty of fair treatment. When identifying conflicts a firm must take into account, as a minimum, whether the firm or its members or employees: is likely to make a financial gain, or avoid a financial loss, at the expense of the client; has an interest in the outcome of a service provided to the client (or of a transaction carried out on behalf of the client) which is distinct from the client's interest in that outcome; has a financial or other incentive to favour the interest of another client (or group of clients) over the interests of the client; carries on the same business as the client; or 1

2 receives an inducement in relation to a service provided to the client, in the form of monies, goods or services, other than the standard commission fee for that service. VCM seeks to identify any conflicts of interest that exist in its business and has put in place measures it considers appropriate to the relevant conflict in an effort to monitor, manage and control any potential impact of those conflicts on its clients which include: managing any conflicts that arise between clients with competing interests; managing any conflicts between VCM and its respective clients where the clients respective interests in a particular outcome may be different; and managing conflicts that arise due to the personal interests of VCM members and employees and the interests of VCM and/or its clients where those interests may be different. Procedure VCM has adopted numerous internal policies and procedures as well as other arrangements in order to manage recognised and potential conflicts of interests. These are all subject to our normal monitoring and review processes and include: 1) Policies & Procedures: a) PA Dealing; b) Restricted Trading List; c) Training and Competency; d) Inducements; e) Best Execution; f) Remuneration; g) Dealing & Managing. 2) Annual Competent Employee Rule (CER) certification; 3) Segregation of supervision and function; 4) Chinese walls; 5) Changes to Rate Agreements or Fees; 6) Disclosure; 7) Refusal of Service; 8) Conflicts of Interest Register. Arrangements to avoid Conflicts of Interest VCM has introduced a number of arrangements to minimise incidents of Conflicts of Interest arising, which are complimented by the overarching requirements placed upon Regulated Firms and Approved Persons as set out by the FSA in SYSC & APER (see above) including: 1) Policies & Procedures; including but not limited to: a) Personal Account Dealing (PA Dealing) VCM policy requires all members of the firm, regardless of their position within VCM, to disclose whether or not they engage in PA Dealing and, if they do, to instruct the relevant broker(s)/spread betting firms to forward copy trading statements to the VCM Compliance department. Staff may not deal the same way for personal account as a customer order or potential order before it is executed or where a customer s interest could be adversely affected. All staff are regularly reminded of the Personal Account Dealing rules through general all staff s. 2

3 b) Restricted Trading List To comply with regulations, and to avoid the appearance of impropriety and to supplement the Chinese Wall arrangements, VCM maintains a Restricted Trading List. This is a list of securities which are subject to restrictions in partner and employee personal account trading. (Please also refer to PA Dealing Policy). Members and employees are prohibited from trading in securities whilst on the list. c) Training and Competency VCM ensures that in its dealings with customers its members and staff must use the highest standard of integrity in their actions at all times. The induction procedure and competency monitoring programme VCM utilises are designed to ensure that all relevant staff are familiar with and observe, inter alia, the FSA Principles for Businesses and the Statements of Principle and Code of Practice for Approved Persons and that they have the Skills, Knowledge and Expertise to discharge their function as per the FSA s Competent Employee Rule (CER) d) Inducements members of the firm are not allowed to accept gifts, entertainment or any other inducement from any person which might benefit one customer at the expense of another when conducting business. For example, where two customers give similar orders and one customer agrees to pay more commission, priority or better execution terms must not be granted to that customer s order when it conflicts with obligations owed to the other customer. e) Best Execution - in order to ensure as fair treatment as possible for customers, the VCM Execution Policy requires our brokers to take all reasonable steps to achieve the best overall trading result for customers; to exercise consistent standards; and operate the same processes across all markets, clients and financial instruments in which we operate. There may be occasions when customer orders may have a material effect on a relevant securities price. In order to ensure that a broker does not take advantage of the situation by dealing on his/her own account or encouraging a third party to deal, VCM has a strict no front running policy. In order to ensure a fair and orderly dealing environment within the market, VCM further ensures that its staff comply with the revised Code of Market Conduct reflecting the provisions of the Market Abuse Directive, as well as the relevant FSA Rules, which aim to prevent insider trading, the misuse of information and market manipulation. f) Remuneration g) Dealing and Managing 2) Annual Competent Employee Rule (CER) certification provides for VCM confirmation that its members understand the Statements of Principle and Code of Practice for Approved Persons; 3) Segregation of supervision and function SYSC requires that senior management segregate duties to provide for the avoidance of potential conflicts of interest. However, it should be noted that in smaller companies, such as VCM, it is not always possible to achieve total segregation due to the limited number of staff within an organisation of this size. While the principles have been considered when devising suitable controls these are subject to modification to take account of the staff numbers performing such tasks and any cross-contamination of tasks; 4) Chinese walls may be employed in order to ensure that conflicts of interest cannot arise where VCM is providing a range of services and clients must be able to trust that information about themselves will not be exploited for the benefit of other clients with 3

4 different interests. Where we choose to use Chinese walls to withhold or not use information held by one part of the business, these arrangements are documented and monitored to maintain evidence of their effectiveness and added to the Conflicts of Interest Register; 5) Changes to Rate Agreements or Fees may be indicative of favourable treatment of one client over another, and thereby indicate an underlying conflict of interest. No changes to rate agreements or fees can be made without approval from one of the co-heads of Broking. In circumstances where a change to a rate agreement or fees could give rise to a potential conflict of interest, the relevant co-head of Broking must advise the Management Committee or the Risk Committee (whichever is to meet first) at the earliest opportunity of the potential conflict of interest; 6) Disclosure. In such instances where a conflict cannot be managed appropriately, and by default we do not therefore protect client interests sufficiently, the conflict shall be disclosed to the client in order that they can make an informed judgement as to whether they wish to continue the particular line of business. Any such disclosure to the client must be made in a durable medium (i.e. , letter) and disclose sufficient detail, taking into consideration the nature of the client, about the relevant conflict of interest to enable the client in question to make an informed decision. The disclosure should be clear, fair and not misleading irrespective of the categorisation of the client. Any disclosures must be recorded and signed off using the Conflicts of Interest declaration form (Appendix 1); 7) Refusal of Service may occur in circumstances where VCM warrants that it cannot manage a particular conflict of interest effectively, and that it may decline to do business with or act for the client. Any such refusals of service must be recorded and signed off using the Conflicts of Interest declaration form (Appendix 1); 8) Conflicts of Interest Register - VCM is obliged to keep a record, referred to as the Conflicts of Interest Register of circumstances in which a conflict of interest may arise or has arisen as a result of the activities carried on by the firm, and to update it regularly and to take any appropriate action to address the likelihood of such conflicts not arising thereafter. Examples of Potential Conflicts may include: Where VCM receives identical or similar orders from two or more clients; Where a VCM member or employee engages in personal account dealing in respect of a security or securities and the firm has a client with an interest that potentially conflicts with such dealing; Where one part of VCM is used by another part of the same or affiliated institution which owes fiduciary obligations; and Where VCM members and employees receive substantial gifts and entertainment (including non-monetary gifts) that may influence behaviour in a way that conflicts with the interests of the clients of the firm. 4

5 Record Keeping All relevant records shall be retained by the Compliance department, and must be kept in strict accordance with legal and regulatory requirements. Review This policy and procedure shall be reviewed annually to ensure VCM s adherence to prevailing regulatory and statutory, and market standards. Questions? If you have any questions with regard to this Policy and Procedure, please Compliance. 5