Annual publication of information on the identity of execution venues and on the quality of execution
30 April 2019
Report for the calendar year ending 31 December 2018
York Capital Management Europe (UK) Advisors, LLP (“York UK”) is an investment firm authorised and regulated by the Financial Conduct Authority.
As an investment firm which provides the services of portfolio management, reception and transmission of orders, and execution of client orders, York UK is obliged to publish on its website information on the top-five execution venues in terms of trading volumes where it executed client orders, and the top-five investment firms in terms of trading volumes where it transmitted or placed client orders for execution in the preceding year. York UK is also obliged to publish a summary of the analysis and conclusions it draws from its detailed monitoring of the quality of execution obtained on the execution venues where it executed client orders in the previous year.
York UK’s sole client is its affiliate York Capital Management Global Advisors, LLC (“YGA”), for which York UK acts as sub-advisor with respect to certain funds and clients that are advised or managed by YGA. York UK has entered into a sub-advisory agreement with YGA setting out the terms on which it provides investment management and advisory services to YGA. The terms of the sub-advisory agreement reflect the categorization of YGA as a Professional Client.
Part 1 of this report sets out data on York UK’s top five execution venues and investment firms in each class of financial instruments in the form specified by Commission Delegated Regulation (EU) 2017/576 (“RTS 28”) for the calendar year ending 31 December 2018. Part 1 of this report is available by the public in a machine-readable format by clicking here https://yorkcapital.com/rts-28-part1/.
Part 1 of this report refers to ‘direct’ and ‘indirect’ execution. York UK uses these terms to refer to the following types of client order execution:
- direct – execution of orders by York UK directly as a member or participant of a trading venue, or with a systematic internaliser, market marker, liquidity provider, or direct counterparty (such as in OTC markets);
- indirect – transmission or placing of orders by York UK with another investment firm for execution by the other firm (e.g. a broker). For the avoidance of doubt, in the context of its portfolio management activities, York UK treats decisions to deal which are made by York UK on behalf of its client, YGA, as constituting client orders for the purposes of this report.
In Part 1 of this report, each execution venue or broker is ranked by trading volume, which for securities transactions is measured by the sum of the gross market values of all orders executed with the execution venue or broker. In the case of derivative transactions, trading volume is measured by the sum of the gross notional values of all orders executed with the execution venue or broker. All values are reported in percentages and rounded to two decimal places.
Instruments that could be reasonably categorized in more than one class of financial instrument have been assigned to the class that York UK believes most accurately reflects the relative importance of the execution factors for such instruments.
Part 2 of this report sets out a summary of York UK’s analysis and conclusions from its detailed monitoring of the quality of execution obtained on the execution venues and investment firms where it executed client orders.
Summary of analysis and conclusions regarding quality of execution obtained
When executing a transaction for YGA or placing an order with a third party for execution on behalf of YGA, York UK must act in the best interests of YGA. In complying with this obligation for the calendar year ending 31 December 2018, York UK was obliged to take all reasonable steps to obtain the best possible result taking account of relevant execution factors, such as price, cost, likelihood of execution and settlement, size, nature of the transaction and any other relevant considerations.
In trading on behalf of YGA, York UK considers the relative importance of each execution factor. York UK uses its experience and expertise to achieve the best balance across the full range of factors, including instances where such factors may conflict with each other. York UK’s order execution policy provides for a significant degree of flexibility in deciding which execution factors are to be taken into account in respect of a particular order. Overall this may mean that York UK does not always achieve the best execution for every client order. However, York UK’s best execution monitoring policy and procedures means that York UK is able to adjust the way it applies its order execution policy in order to continually improve execution quality, such that York UK is able to achieve best execution when considered by reference to the totality of the relevant period.
Generally, York UK considers the most important execution factor, across all classes of instruments, to be total price (i.e. the execution price of the financial instrument (before costs) plus all costs associated with acquiring or disposing of the relevant financial instrument, including both explicit costs (such as commissions charged by third party brokers) and implicit costs (such as movements in the price of the financial instrument as a result of the execution)). However, there may be circumstances where the primary execution factors may vary and total price is no longer the dominant execution factor.
When executing orders in over-the-counter markets, price shall in most circumstances merit the highest relative importance in obtaining best execution, but there may be circumstances in which size requirements will not permit execution at best price or a better price viewed on screen will not hold up to a price obtained more readily by phone. When executing orders in over-the-counter markets, York UK will assess the fairness of the price proposed by gathering market data and, where possible, comparing with similar or comparable products.
York UK may pass orders to its affiliates to execute on an execution venue or with a broker. York UK will typically utilise its affiliates for order execution in connection with orders involving instruments traded in specific geographies or relating to specific strategies where the affiliate possesses specific expertise or familiarity in relation to such instruments and relevant execution venues. With the exception of York UK’s common ownership with its affiliates, York UK is not aware of close links or common ownerships with the execution venues or brokers it uses to execute orders. In addition, York UK is not aware of conflicts of interest between it (or its affiliates) and such execution venues or brokers that would impair its ability to obtain, when executing orders, the best possible result for its clients. In the event a conflict of interest arises, such conflict will be handled in accordance with York UK’s conflict of interest policy.
York UK has established policies and procedures to monitor and resolve conflicts with respect to any execution venues used to execute client orders. York UK does not have any arrangements under which York UK receives any payment, discount, or rebate from an execution venue or investment firm. For the calendar year ending 31 December 2018, York UK was permitted, under rules relating to dealing commission, to receive non-monetary benefits such as investment research from investment firms to which York UK transmitted client orders. However, in compliance with its obligation to take all reasonable steps to achieve the best possible result when executing client orders, York UK considers that such arrangements did not result in any detriment to the quality of execution obtained for its client.
As part of its order execution policy, York UK maintains a list of execution venues and investment firms which York UK uses for execution of orders. During 2018, York UK made a number of changes to the list of execution venues and brokers listed in the firm’s execution policy. Additions were made following an assessment of new execution venues’ and brokers’ specialization in particular instruments, markets, or geographies, their ability to source inventory or market flow, or for their ability to obtain a favorable pricing or low overall transaction costs at a given order size. A number of execution venues and brokers were removed from the list as a result of infrequent trading, including where the execution venue or broker had been used for a one-off transaction or a small number of specific transactions.
York UK conducts periodic reviews of its order execution activities across all classes of financial instruments utilizing both quantitative and qualitative data to monitor the quality of the execution obtained and other tools. For example, York UK conducts post-trade transaction cost analysis to analyse trader decision-making and the performance of its execution venues and trading strategies. Among other things, this analysis considers whether an executed price was higher or lower than the price of the financial instrument at the time the order was received from the portfolio manager (i.e., arrival costs) and whether actual arrival costs were consistent with anticipated arrival costs (using internal and/or third party estimates).
York UK considers that the above approach, and the consideration of the order execution factors per class of instrument below enabled it to achieve a high quality of execution for its client for the calendar year ending 31 December 2018.
In particular, York UK considers that:
- the execution venues and brokers included in its order execution policy demonstrated the capabilities necessary to efficiently execute orders across the full range of asset classes traded by York UK on behalf of its clients;
- York UK maintains relationships with a sufficient number of execution venues and brokers, given the extent and nature of its trading activities;
- the commissions charged by the brokers it used to execute orders were reasonable and consistent with, or more favorable than, standard market rates;
- York UK does not overly depend on a single execution venue or broker for asset classes it trades actively; and
- taken on an overall basis, York UK’s selection of execution venues and brokers resulted in the best possible results for its clients.