MiFID II Best Execution

MiFID II RTS 28 Report

Annual publication of information on the identity of execution venues and on the quality of execution

30 April 2018

Report for the calendar year ending 31 December 2017

Overview

Basso Associates UK Limited (“Basso Associates”) 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, Basso Associates 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. Basso Associates 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.

Basso Associates’ sole client is its affiliate Basso Capital Management, L.P. (“Basso Capital”), for which Basso Associates acts as sub-advisor with respect to certain funds and clients that are advised or managed by Basso Capital. Basso Associates has entered into a sub-advisory agreement with Basso Capital setting out the terms on which it provides investment management and advisory services to Basso Capital. The terms of the sub-advisory agreement reflect the categorization of Basso Capital as a Professional Client.

PART 1

Execution Data

Part 1 of this report sets out data on Basso Associates’ top five execution venues and investment firms for the five classes of financial instruments traded by Basso Associates in the calendar year ending 31 December 2017. The data is provided in the form specified by Commission Delegated Regulation (EU) 2017/576 (“RTS 28”). Part 1 of this report is available to download by the public in a machine format by clicking on the immediately following hyperlink and in a PDF format by clicking on the second following hyperlink.

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Part 1 of this report refers to ‘direct’ and ‘indirect’ execution. Basso Associates uses these terms to refer to the following types of client order execution:

  • (i) direct – execution of orders by Basso Associates 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); and
  • (ii) indirect – transmission or placing of orders by Basso Associates 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, Basso Associates treats decisions to deal which are made by Basso Associates on behalf of its client, Basso Capital, 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 Basso Associates believes most accurately reflects the relative importance of the execution factors for such instruments.

PART 2

Summary of analysis and conclusions regarding quality of execution obtained

Part 2 of this report sets out a summary of Basso Associates’ analysis and conclusions from its detailed monitoring (conducted in conjunction with Basso Capital) of the quality of execution obtained on the execution venues and investment firms where it executed client orders.

When executing a transaction for Basso Capital or placing an order with a third party for execution on behalf of Basso Capital, Basso Associates must act in the best interests of Basso Capital. In complying with this obligation for the calendar year ending 31 December 2017, Basso Associates was obliged to take all reasonable steps to obtain the best possible result taking account of relevant execution factors such as price, cost (including commissions and spreads), likelihood of execution and settlement (liquidity), size, nature of the transaction and any other relevant considerations.

In trading on behalf of Basso Capital, Basso Associates considers the relative importance of each execution factor. Basso Associates uses its experience and expertise to achieve the best balance across the full range of factors, including, infrequently, instances where such factors may conflict with each other. Basso Associates’ 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 Basso Associates does not always achieve the best execution for every client order. However, Basso Associates’ best execution monitoring policy and procedures (conducted in conjunction with Basso Capital) means that Basso Associates is able to adjust the way it applies its order execution policy in order to seek continually improved execution quality, such that Basso Associates believes it is able to achieve best execution when considered by reference to the totality of the relevant period.

Generally, Basso Associates considers the most important execution factor, across all classes of instruments, to be price (i.e. the execution price of the financial instrument (before costs)), with additional consideration given to costs associated with acquiring or disposing of the relevant financial instrument (such as commissions charged by brokers). However, there may be circumstances where the primary execution factors may vary and total price is no longer the dominant execution factor. Thus, for instance, Basso Associates looks to brokers who provide liquidity with respect to both initial bond issuances as well as the secondary market trading of those issuances.

Basso Associates is not aware of close links or common ownerships with the execution venues or brokers it uses to execute orders. In addition, Basso Associates 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 client. In the event a conflict of interest arises, such conflict will be handled in accordance with Basso Associates’ conflict of interest policy.

Basso Associates has established policies and procedures to monitor and resolve conflicts with respect to any execution venues used to execute client orders. Principally, it is noted that Basso Associates does not have any arrangements under which it receives any payment, discount, or rebate from an execution venue or investment firm. For the calendar year ending 31 December 2017, Basso Associates was permitted, under rules relating to dealing commission, to receive non-monetary benefits such as investment research from investment firms to which Basso Associates transmitted client orders. However, in compliance with its obligation to take all reasonable steps to achieve the best possible result when executing client orders, Basso Associates 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, Basso Associates (in conjunction with Basso Capital) maintains a list of execution venues and investment firms which Basso Associates uses for execution of orders. For the calendar year ending 31 December 2017, there were no changes to the list of venues maintained by Basso Associates. There is considerable overlap in the venues and investment firms Basso Associates uses when executing trades across the varying instrument classes it trades on behalf of Basso Capital. Given that Basso Associates has just one client, order execution does not differ across client categorizations, and the absence of retail clients means no particular considerations or criteria precedence were given with respect to them.

Basso Associates (in conjunction with Basso Capital) conducts periodic reviews of its order execution activities across all classes of financial instruments it trades utilizing both quantitative and qualitative data to monitor the quality of the execution obtained. For example, Basso Associates (in conjunction with Basso Capital) conducts an analysis that considers whether, and if so, by what percent, an executed price was higher or lower than the volume weighted average price of the financial instrument on the day the order was executed.

Data required to be published by trading venues and certain other market participants in accordance with MiFID II is not available for the calendar year ending 31 December 2017. Accordingly, Basso Associates did not utilize such data in its review of its order execution activities for this period. In addition there is not yet any output from a consolidated tape provider and so Basso Associates does not have access to this data.

Basso Associates considers that the above approach, and the consideration of the order execution factors below, enabled it to achieve a high quality of execution for its client for the calendar year ending 31 December 2017.

In particular, Basso Associates 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 Basso Associates on behalf of its client;
  • Basso Associates 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 standard market rates;
  • Basso Associates does not overly depend on a single execution venue or broker for asset classes it trades actively; and
  • taken on an overall basis, Basso Associates’ selection of execution venues and brokers generally resulted in the best possible results for its client.

This conclusion is supported by the best execution analysis conducted by Basso Associates (in conjunction with Basso Capital), and in particular, the comparison of actual trade price executions versus volume weighted average prices. In addition, the wide range of execution venues and brokers employed gives Basso Associates further comfort that it is aware of and receiving information about current market pricing, terms and conditions. The receipt of this broad, and specific, market information is integral to obtaining best execution.