Dealing and managing

Part

COBS Conduct of Business Sourcebook

Chapter

Dealing and managing

Printed on: 06/11/2024

Rulebook at: 19/07/2011

COBS 11

Dealing and managing

COBS 11.1

Application

01/11/2007

General application

COBS 11.1.1

This chapter applies to a firm.

(1) [deleted]
(2) [deleted]

01/11/2007

COBS 11.1.2

In this chapter, provisions marked "EU" apply to a firm which is not a MiFID investment firm as if they were rules.

01/11/2007

Application to section on the use of dealing commission

COBS 11.1.3

The section on the use of dealing commission applies to a firm that acts as an investment manager.

01/11/2007

Application of section on personal account dealing

COBS 11.1.4

The section on personal account dealing applies to the designated investment business of a firm in relation to activities carried on from an establishment in the United Kingdom.

01/11/2007

COBS 11.1.5

The EEA territorial scope rule modifies the default territorial scope of the section on personal account dealing (see COBS 11.7) to the extent necessary to be compatible with European law (see paragraph 1.1G of Part 3 of COBS 1 Annex 1). This means that the section on personal account dealing also applies to passported activities carried on by a UK MiFID investment firm or a UK UCITS management company from a branch in another EEA state, but does not apply to the UK branch of an EEA MiFID investment firm in relation to its MiFID business or of an EEA UCITS management company in relation to activities it is entitled to carry on in the United Kingdom under the UCITS Directive.

01/07/2011

Disapplication of best execution for non-financial spreads

COBS 11.1.6

The section on best execution (COBS 11.2) does not apply to a firm when:

(1) executing orders: or
(2) placing orders with other entities for execution: or
(3) transmitting orders to other entities for execution;

in relation to a spread-bet which is not a financial instrument, where the firm has not made a personal recommendation in relation to that spread-bet.

01/11/2007

Disapplication of best execution to CIS operators purchasing or selling own units

COBS 11.1.7

The section on best execution (COBS 11.2) does not apply to a firm when, acting in the capacity of operator of a regulated collective investment scheme, it purchases or sells units in that scheme.

01/11/2008

COBS 11.2

Best execution

01/11/2007

Obligation to execute orders on terms most favourable to the client

COBS 11.2.1

A firm must take all reasonable steps to obtain, when executing orders, the best possible result for its clients taking into account the execution factors.

[Note: article 21(1) of MiFID and article 25(2) first sentence of the UCITS implementing Directive]

[Note: The Committee of European Securities Regulators (CESR) has issued a Question and Answer paper on best execution under MiFID. This paper also incorporates the European Commission's response to CESR's questions regarding the scope of the best execution obligations under MiFID. The paper can be found at: http://www.cesr.eu/index.php?docid=4606]

01/07/2011

Execution of decisions by UCITS management companies to deal on behalf of the schemes they manage

COBS 11.2.1A

A management company must, in relation to each UCITS scheme or EEA UCITS scheme it manages, act in the best interests of the scheme when executing decisions to deal on its behalf in the context of the management of its portfolio, and COBS 11.2.1 R applies in relation to all such decisions.

[Note: article 25(1) of the UCITS implementing Directive]

01/07/2011

Application of best execution obligation

COBS 11.2.2

The obligation to take all reasonable steps to obtain the best possible result for its clients (see COBS 11.2.1 R) should apply to a firm which owes contractual or agency obligations to the client.

[Note: recital 33 to MiFID]

01/11/2007

COBS 11.2.3

Dealing on own account with clients by a firm should be considered as the execution of client orders, and therefore subject to the requirements under MiFID, in particular, those obligations in relation to best execution.

[Note: first sentence of recital 69 to the MiFID implementing Directive]

01/11/2007

COBS 11.2.4

If a firm provides a quote to a client and that quote would meet the firm's obligations to take all reasonable steps to obtain the best possible result for its clients if the firm executed that quote at the time the quote was provided, the firm will meet those same obligations if it executes its quote after the client accepts it, provided that, taking into account the changing market conditions and the time elapsed between the offer and acceptance of the quote, the quote is not manifestly out of date.

[Note: second sentence of recital 69 to the MiFID implementing Directive]

01/11/2007

COBS 11.2.5

The obligation to deliver the best possible result when executing client orders applies in relation to all types of financial instruments. However, given the differences in market structures or the structure of financial instruments, it may be difficult to identify and apply a uniform standard of and procedure for best execution that would be valid and effective for all classes of instrument. Best execution obligations should therefore be applied in a manner that takes into account the different circumstances associated with the execution of orders related to particular types of financial instruments. For example, transactions involving a customised OTC financial instrument that involve a unique contractual relationship tailored to the circumstances of the client and the firm may not be comparable for best execution purposes with transactions involving shares traded on centralised execution venues.

[Note: recital 70 to the MiFID implementing Directive]

01/11/2007

Management companies: execution and transmission of orders

COBS 11.2.5A

(1) A management company should, for each UCITS scheme or EEA UCITS scheme it manages, act in the best interests of the scheme when directly executing orders to deal on its behalf or when transmitting those orders to third parties.
(2) When executing orders on behalf of any such scheme it manages, a management company is expected to take all reasonable steps to obtain the best possible result for the scheme on a consistent basis, taking into account price, costs, speed, likelihood of execution and settlement, size and nature of the order or any other consideration relevant to the execution of the order.

[Note: recital (19) to the UCITS implementing Directive]

01/07/2011

Best execution criteria

COBS 11.2.6

When executing a client order, a firm must take into account the following criteria for determining the relative importance of the execution factors:

(1) the characteristics of the client including the categorisation of the client as retail or professional;
(2) the characteristics of the client order;
(3) the characteristics of financial instruments that are the subject of that order;
(4) the characteristics of the execution venues to which that order can be directed; and
(5) for a management company, the objectives, investment policy and risks specific to the UCITS scheme or EEA UCITS scheme, as indicated in its prospectus or instrument constituting the scheme.

[Note: article 44(1) of the MiFID implementing Directive and article 25(2) second sentence of the UCITS implementing Directive]

01/07/2011

Role of price

COBS 11.2.7

Where a firm executes an order on behalf of a retail client, the best possible result must be determined in terms of the total consideration, representing the price of the financial instrument and the costs related to execution, which must include all expenses incurred by the client which are directly related to the execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order.

[Note: paragraph 1 of article 44(3) of the MiFID implementing Directive]

01/11/2007

COBS 11.2.8

For the purposes of ensuring that a firm obtains the best possible result for the client when executing a retail client order in the absence of specific client instructions, the firm should take into consideration all factors that will allow it to deliver the best possible result in terms of the total consideration, representing the price of the financial instrument and the costs related to execution. Speed, likelihood of execution and settlement, the size and nature of the order, market impact and any other implicit transaction costs may be given precedence over the immediate price and cost consideration only insofar as they are instrumental in delivering the best possible result in terms of the total consideration to the retail client.

[Note: recital 67 to the MiFID implementing Directive]

01/11/2007

COBS 11.2.9

A firm's execution policy should determine the relative importance of each of the execution factors or establish a process by which the firm will determine the relative importance of the execution factors. The relative importance that the firm gives to those execution factors must be designed to obtain the best possible result for the execution of its client orders. Ordinarily, the FSA would expect that price will merit a high relative importance in obtaining the best possible result for professional clients. However, in some circumstances for some clients, orders, financial instruments or markets, the policy may appropriately determine that other execution factors are more important than price in obtaining the best possible execution result.

01/11/2007

Delivering best execution where there are competing execution venues

COBS 11.2.10

For the purposes of delivering best execution for a retail client where there is more than one competing venue to execute an order for a financial instrument, in order to assess and compare the results for the client that would be achieved by executing the order on each of the execution venues listed in the firm's order execution policy that is capable of executing that order, the firm's own commissions and costs for executing the order on each of the eligible execution venues must be taken into account in that assessment.

[Note: article 44(3) of paragraph 2 of the MiFID implementing Directive]

01/11/2007

COBS 11.2.11

The obligation to deliver best execution for a retail client where there are competing execution venues is not intended to require a firm to compare the results that would be achieved for its client on the basis of its own execution policy and its own commissions and fees, with results that might be achieved for the same client by any other firm on the basis of a different execution policy or a different structure of commissions or fees. Nor is it intended to require a firm to compare the differences in its own commissions which are attributable to differences in the nature of the services that the firm provides to clients.

[Note: recital 71 to the MiFID implementing Directive]

01/11/2007

COBS 11.2.12

A firm must not structure or charge its commissions in such a way as to discriminate unfairly between execution venues.

[Note: article 44(4) of the MiFID implementing Directive]

01/11/2007

COBS 11.2.13

A firm would be considered to structure or charge its commissions in a way which discriminates unfairly between execution venues if it charges a different commission or spread to clients for execution on different execution venues and that difference does not reflect actual differences in the cost to the firm of executing on those venues.

[Note: recital 73 to the MiFID implementing Directive]

01/11/2007

Requirement for order execution arrangements including an order execution policy

COBS 11.2.14

A firm must establish and implement effective arrangements for complying with the obligation to take all reasonable steps to obtain the best possible result for its clients. In particular, the firm must establish and implement an order execution policy to allow it to obtain, for its client orders, the best possible result in accordance with that obligation.

[Note: article 21(2) of MiFID and article 25(3) first paragraph of the UCITS implementing Directive]

01/07/2011

COBS 11.2.15

The order execution policy must include, in respect of each class of financial instruments, information on the different execution venues where the firm executes its client orders and the factors affecting the choice of execution venue. It must at least include those execution venues that enable the firm to obtain on a consistent basis the best possible result for the execution of client orders.

[Note: paragraph 1 of article 21(3) of MiFID]

01/11/2007

COBS 11.2.16

(1) When establishing its execution policy, a firm should determine the relative importance of the execution factors, or at least establish the process by which it determines the relative importance of these factors, so that it can deliver the best possible result to its clients.
(2) In order to give effect to that policy, a firm should select the execution venues that enable it to obtain on a consistent basis the best possible result for the execution of client orders.
(3) A firm should apply its execution policy to each client order that it executes with a view to obtaining the best possible result for the client in accordance with that policy.
(4) The obligation to take all reasonable steps to obtain the best possible result for the client should not be treated as requiring a firm to include in its execution policy all available execution venues.

[Note: recital 66 to the MiFID implementing Directive]

01/11/2007

COBS 11.2.17

The provisions of this section which provide that costs of execution include a firm's own commissions or fees charged to the client for the provision of an investment service should not apply for the purpose of determining what execution venues must be included in the firm's execution policy.

[Note: recital 72 to the MiFID implementing Directive]

01/11/2007

COBS 11.2.18

The provisions of this section as to execution policy are without prejudice to the general obligation of a firm to monitor the effectiveness of its order execution arrangements and policy and assess the execution venues in its execution policy on a regular basis.

[Note: recital 74 to the MiFID implementing Directive]

01/11/2007

Following specific instructions from a client

COBS 11.2.19

(1) Whenever there is a specific instruction from the client, the firm must execute the order following the specific instruction.
[Note: article 21(1) of MiFID]
(2) A firm satisfies its obligation under this section to take all reasonable steps to obtain the best possible result for a client to the extent that it executes an order, or a specific aspect of an order, following specific instructions from the client relating to the order or the specific aspect of the order.
[Note: article 44(2) of the MiFID implementing Directive]

01/11/2007

COBS 11.2.20

When a firm executes an order following specific instructions from the client, it should be treated as having satisfied its best execution obligations only in respect of the part or aspect of the order to which the client instructions relate. The fact that the client has given specific instructions which cover one part or aspect of the order should not be treated as releasing the firm from its best execution obligations in respect of any other parts or aspects of the client order that are not covered by such instructions.

[Note: recital 68 to the MiFID implementing Directive]

01/11/2007

COBS 11.2.21

A firm should not induce a client to instruct it to execute an order in a particular way, by expressly indicating or implicitly suggesting the content of the instruction to the client, when the firm ought reasonably to know that an instruction to that effect is likely to prevent it from obtaining the best possible result for that client. However, this should not prevent a firm inviting a client to choose between two or more specified trading venues, provided that those venues are consistent with the execution policy of the firm.

[Note: recital 68 to the MiFID implementing Directive]

01/11/2007

Information about the order execution policy

COBS 11.2.22

A firm must provide appropriate information to its clients on its order execution policy.

[Note: paragraph 2 of article 21(3) of MiFID]

01/11/2007

COBS 11.2.23

(1) A firm must provide a retail client with the following details on its execution policy in good time prior to the provision of the service:

(a) an account of the relative importance the firm assigns, in accordance with the execution criteria, to the execution factors, or the process by which the firm determines the relative importance of those factors;
(b) a list of the execution venues on which the firm places significant reliance in meeting its obligation to take all reasonable steps to obtain on a consistent basis the best possible result for the execution of client orders;
(c) a clear and prominent warning that any specific instructions from a client may prevent the firm from taking the steps that it has designed and implemented in its execution policy to obtain the best possible result for the execution of those orders in respect of the elements covered by those instructions.

(2) This information must be provided in a durable medium, or by means of a website (where that does not constitute a durable medium) provided that the website conditions are satisfied.

[Note: article 46(2) of the MiFID implementing Directive]

01/11/2007

COBS 11.2.23A

A management company must make available appropriate information on its execution policy and on any material changes to that policy to the unitholders of each scheme it manages.

[Note: article 25(3) second part of the second paragraph of the UCITS implementing Directive]

01/07/2011

COBS 11.2.24

Where the order execution policy provides for the possibility that client orders may be executed outside a regulated market or an MTF, the firm must, in particular, inform its clients about this possibility.

[Note: paragraph 3 of article 21(3) of MiFID]

01/11/2007

Client consent to execution policy and execution of orders outside a regulated market or MTF

COBS 11.2.25

(1) A firm (other than a management company providing collective portfolio management services for a UCITS scheme or an EEA UCITS scheme) must obtain the prior consent of its clients to the execution policy.
(2) In the case of a management company providing collective portfolio management services for an ICVC that is a UCITS scheme, or for an EEA UCITS scheme that is structured as an investment company, the management company must obtain the prior consent of the ICVC or investment company to the execution policy.
(3) In the case of a management company that is the ACD of an ICVC that is a UCITS scheme, (2) does not apply where the ACD is the sole director of the ICVC.

[Note: paragraph 2 of article 21(3) of MiFID and article 25(3) first part of the second paragraph of the UCITS implementing Directive]

01/07/2011

COBS 11.2.26

A firm must obtain the prior express consent of its clients before proceeding to execute their orders outside a regulated market or an MTF. The firm may obtain this consent either in the form of a general agreement or in respect of individual transactions.

[Note: paragraph 3 of article 21(3) of MiFID]

01/11/2007

Monitoring the effectiveness of execution arrangements and policy

COBS 11.2.27

A firm must monitor the effectiveness of its order execution arrangements and execution policy in order to identify and, where appropriate, correct any deficiencies. In particular, it must assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether it needs to make changes to its execution arrangements. The firm must notify clients of any material changes to their order execution arrangements or execution policy.

[Note: article 21(4) of MiFID and article 25(4) first paragraph of the UCITS implementing Directive]

01/07/2011

Review of the order execution policy

COBS 11.2.28

(1) A firm must review annually its execution policy, as well as its order execution arrangements.
(2) This review must also be carried out whenever a material change occurs that affects the firm's ability to continue to obtain the best possible result for the execution of its client orders on a consistent basis using the venues included in its execution policy.

[Note: article 46(1) of the MiFID implementing Directive and article 25(4) second paragraph of the UCITS implementing Directive]

01/07/2011

Demonstration of execution of orders in accordance with execution policy

COBS 11.2.29

(1) A firm other than a management company must be able to demonstrate to its clients, at their request, that it has executed their orders in accordance with its execution policy.
(2) A management company must be able to demonstrate that it has executed orders on behalf of any UCITS scheme or EEA UCITS scheme it manages in accordance with its execution policy.

[Note: article 21(5) of MiFID and article 25(5) of the UCITS implementing Directive]

01/07/2011

Duty of portfolio managers, receivers and transmitters and management companies to act in clients' best interests

COBS 11.2.30

A firm must, when providing the service of portfolio management or, for a management company, collective portfolio management, comply with the obligation to act in accordance with the best interests of its clients when placing orders with other entities for execution that result from decisions by the firm to deal in financial instruments on behalf of its client.

[Note: article 45(1) of MiFID implementing Directive and article 26(1) of the UCITS implementing Directive]

01/07/2011

COBS 11.2.31

A firm must, when providing the service of reception and transmission of orders, comply with the obligation to act in accordance with the best interests of its clients when transmitting client orders to other entities for execution.

[Note: article 45(2) of the MiFID implementing Directive]

01/11/2007

COBS 11.2.32

In order to comply with the obligation to act in accordance with the best interests of its clients when it places an order with, or transmits an order to, another entity for execution, a firm must:
[Note: article 45(3) of the MiFID implementing Directive and article 26(1) of the UCITS implementing Directive]

(1) take all reasonable steps to obtain the best possible result for its clients taking into account the execution factors. The relative importance of these factors must be determined by reference to the execution criteria and, for retail clients, to the requirement to determine the best possible result in terms of the total consideration (see COBS 11.2.7 R).
A firm satisfies its obligation to act in accordance with the best interests of its clients, and is not required to take the steps mentioned above, to the extent that it follows specific instructions from its client when placing an order with, or transmitting an order to, another entity for execution;
[Note: paragraph 1 and 2 of article 45(4) of the MiFID implementing Directive and article 26(2) first paragraph of the UCITS implementing Directive]
(2) establish and implement a policy to enable it to comply with the obligation to take all reasonable steps to obtain the best possible result for its clients. The policy must identify, in respect of each class of instruments, the entities with which the orders are placed or to which the firm transmits orders for execution. The entities identified must have execution arrangements that enable the firm to comply with its obligations under this section or, for a management company, must only enter into arrangements for execution where those arrangements are consistent with the requirements of this section, when it places an order with, or transmits an order to, that entity for execution;
[Note: paragraph 1 of article 45(5) of the MiFID implementing Directive and article 26(2) second paragraph of the UCITS implementing Directive]
(3) provide appropriate information to its clients on the policy established in accordance with COBS 11.2.32R (2) or, for a management company, make available to unit holders appropriate information on that policy and on any material changes to it;
[Note: paragraph 2 of article 45(5) of the MiFID implementing Directive and article 26(2) second paragraph last sentence of the UCITS implementing Directive]
(4) monitor on a regular basis the effectiveness of the policy and, in particular, the execution quality of the entities identified in that policy and, where appropriate, correct any deficiencies; and
[Note: first paragraph of article 45(6) of the MiFID implementing Directive and article 26(3) first paragraph of the UCITS implementing Directive]
(5) review the policy annually. This review must also be carried out whenever a material change occurs that affects the firm's ability to continue to obtain the best possible result for its clients.
[Note: second paragraph of article 45(6) of the MiFID implementing Directive and article 26(3) second paragraph of the UCITS implementing Directive]

01/07/2011

COBS 11.2.32A

A management company must be able to demonstrate that it has placed orders on behalf of any UCITS scheme or EEA UCITS scheme it manages in accordance with the policy referred to in COBS 11.2.32 R (2).

[Note: article 26(4) of the UCITS implementing Directive]

01/07/2011

COBS 11.2.33

This section is not intended to require a duplication of effort as to best execution between a firm which provides the service of reception and transmission of orders or portfolio management and any firm to which that firm transmits its orders for execution.

[Note: recital 75 to the MiFID implementing Directive]

01/11/2007

COBS 11.2.34

The provisions applying to a firm which places orders with, or transmits orders to, other entities for execution (see COBS 11.2.30 R to COBS 11.2.33 G) will not apply when the firm which provides the service of portfolio management or collective portfolio management and/or service of reception and transmission of orders also executes the orders received or the decisions to deal on behalf of its client's portfolio. In those cases the requirements of this section for firms who execute orders apply (see COBS 11.2.1 R to COBS 11.2.29 R).

[Note: article 45(7) of the MiFID implementing Directive and article 25 of the UCITS implementing Directive]

01/07/2011

COBS 11.3

Client order handling

01/11/2007

General principles

COBS 11.3.1

(1) A firm (other than a management company providing collective portfolio management services) which is authorised to execute orders on behalf of clients must implement procedures and arrangements which provide for the prompt, fair and expeditious execution of client orders, relative to other orders or the trading interests of the firm.
[Note: paragraph 1 of article 22(1) of MiFID]
(2) These procedures or arrangements must allow for the execution of otherwise comparable orders in accordance with the time of their reception by the firm.
[Note: paragraph 2 of article 22(1) of MiFID]
(3) A management company providing collective portfolio management services, must establish and implement procedures and arrangements in respect of all client orders it carries out which provide for the prompt, fair and expeditious execution of portfolio transactions on behalf of the UCITS scheme or EEA UCITS scheme it manages.
[Note: article 27(1) first paragraph of the UCITS implementing Directive]

01/07/2011

COBS 11.3.2

A firm must satisfy the following conditions when carrying out client orders:

(1) it must ensure that orders executed on behalf of clients are promptly and accurately recorded and allocated;
(2) it must carry out otherwise comparable orders sequentially and promptly unless the characteristics of the order or prevailing market conditions make this impracticable, or the interests of the client require otherwise; and
(3) it must inform a retail client about any material difficulty relevant to the proper carrying out of orders promptly upon becoming aware of the difficulty.

[Note: article 47(1) of the MiFID implementing Directive, article 19(1) of MiFID and article 27(1) second paragraph of the UCITS implementing Directive]

01/07/2011

COBS 11.3.3

For the purposes of the provisions of this section, orders should not be treated as otherwise comparable if they are received by different media and it would not be practicable for them to be treated sequentially.

[Note: recital 78 to the MiFID implementing Directive]

01/11/2007

COBS 11.3.4

Where a firm is responsible for overseeing or arranging the settlement of an executed order or executes the order itself in the course of providing collective portfolio management services, it must take all reasonable steps to ensure that any client financial instruments or client funds received in settlement of that executed order are promptly and correctly delivered to the account of the appropriate client.

[Note: article 47(2) of the MiFID implementing Directive, article 19(1) of MiFID and article 27(1) third paragraph of the UCITS implementing Directive]

01/07/2011

COBS 11.3.5

A firm must not misuse information relating to pending client orders, and shall take all reasonable steps to prevent the misuse of such information by any of its relevant persons.

[Note: article 47(3) of the MiFID implementing Directive, article 19(1) of MiFID and article 27(2) of the UCITS implementing Directive]

01/07/2011

COBS 11.3.6

Without prejudice to the Market Abuse Directive, for the purposes of the rule on the misuse of information (see COBS 11.3.5 R), any use by a firm of information relating to a pending client order in order to deal on own account in the financial instruments to which the client order relates, or in related financial instruments, should be considered a misuse of that information. However, the mere fact that market makers or bodies authorised to act as counterparties confine themselves to pursuing their legitimate business of buying and selling financial instruments, or that persons authorised to execute orders on behalf of third parties confine themselves to carrying out an order dutifully, should not in itself be deemed to constitute a misuse of information.

[Note: recital 78 to the MiFID implementing Directive]

01/11/2007

Aggregation and allocation of orders

COBS 11.3.7

A firm is not permitted to carry out a client order or a transaction for own account in aggregation with another client order unless the following conditions are met:

(1) it must be unlikely that the aggregation of orders and transactions will work overall to the disadvantage of any client whose order is to be aggregated;
(2) it must be disclosed to each client whose order is to be aggregated that the effect of aggregation may work to its disadvantage in relation to a particular order;
(3) an order allocation policy must be established and effectively implemented, providing in sufficiently precise terms for the fair allocation of aggregated orders and transactions, including how the volume and price of orders determines allocations and the treatment of partial executions.

[Note: article 48(1) of the MiFID implementing Directive, article 19(1) of MiFID and article 28(1) of the UCITS implementing Directive]

01/07/2011

COBS 11.3.8

If a firm aggregates a client order with one or more other orders and the aggregated order is partially executed, it must allocate the related trades in accordance with its order allocation policy.

[Note: article 48(2) of the MiFID implementing Directive, article 19(1) of MiFID and article 28(2) of the UCITS implementing Directive]

01/07/2011

Aggregation and allocation of transactions for own account

COBS 11.3.9

A firm which has aggregated transactions for own account with one or more client orders must not allocate the related trades in a way which is detrimental to a client.

[Note: article 49(1) of the MiFID implementing Directive, article 19(1) of MiFID and article 28(3) of the UCITS implementing Directive]

01/07/2011

COBS 11.3.10

(1) If a firm aggregates a client order with a transaction for own account and the aggregated order is partially executed, it must allocate the related trades to the client in priority to the firm.
(2) However, if the firm is able to demonstrate on reasonable grounds that without the combination it would not have been able to carry out the order on such advantageous terms, or at all, it may allocate the transaction for own account proportionally, in accordance with its order allocation policy.

[Note: article 49(2) of the MiFID implementing Directive, article 19(1) of MiFID and article 28(4) of the UCITS implementing Directive]

01/07/2011

COBS 11.3.11

A firm must, as part of its order allocation policy, put in place procedures to prevent the reallocation, in a way that is detrimental to the client, of transactions for own account which are executed in combination with client orders.

[Note: article 49(3) of the MiFID implementing Directive and article 19(1) of MiFID]

01/11/2007

COBS 11.3.12

For the purposes of the provisions of this section, the reallocation of transactions should be considered as detrimental to a client if, as an effect of that reallocation, unfair precedence is given to the firm or to any particular person.

[Note: recital 77 to the MiFID implementing Directive]

01/11/2007

COBS 11.3.13

In this section, carrying out client orders includes:

(1) the execution of orders on behalf of clients;
(2) the placing of orders with other entities for execution that result from decisions to deal in financial instruments on behalf of clients when providing the service of portfolio management or collective portfolio management;
(3) the transmission of client orders to other entities for execution when providing the service of reception and transmission of orders.

01/07/2011

COBS 11.4

Client limit orders

01/11/2007

Obligation to make unexecuted client limit orders public

COBS 11.4.1

Unless a client expressly instructs otherwise, a firm must, in the case of a client limit order in respect of shares admitted to trading on a regulated market which is not immediately executed under prevailing market conditions, take measures to facilitate the earliest possible execution of that order by making public immediately that client limit order in a manner which is easily accessible to other market participants.

[Note: article 22(2) of MiFID]

01/11/2007

COBS 11.4.2

In respect of transactions executed between eligible counterparties, the obligation to disclose client limit orders should only apply where the counterparty is explicitly sending a limit order to a firm for its execution.

[Note: recital 42 to MiFID]

01/11/2007

How client limit orders may be made public

COBS 11.4.3

An investment firm shall be considered to disclose client limit orders that are not immediately executable if it transmits the order to a regulated market or MTF that operates an order book trading system, or ensures that the order is made public and can be easily executed as soon as market conditions allow.

[Note: article 31 of MiFID Regulation]

01/11/2007

COBS 11.4.4

MAR 5.8.2 EU sets out the conditions required for an arrangement to make client limit orders public under this section. MAR 5.8.3 G and MAR 5.8.4 G provide guidance on these conditions.

01/11/2007

Orders that are large in scale

COBS 11.4.5

The obligation to make public a limit order will not apply to a limit order that is large in scale compared with normal market size.

[Note: article 22(2) of MiFID]

01/11/2007

COBS 11.4.6

MAR 5.7.10 EU and MAR 5.7.11 EU set out when an order shall be considered large in scale compared with normal market size.

01/11/2007

COBS 11.5

Record keeping: client orders and transactions

01/11/2007

Record keeping of client orders and decisions to deal

COBS 11.5.1

An investment firm shall, in relation to every order received from a client, and in relation to every decision to deal taken in providing the service of portfolio management, immediately make a record of the following details, to the extent they are applicable to the order or decision to deal in question:

(1) the name or other designation of the client;
(2) the name or other designation of any relevant person acting on behalf of the client;
(3) the details specified in point 4, 6, and in points 16 to 19, of Table 1 of Annex I;
(4) the nature of the order if other than buy or sell;
(5) the type of the order;
(6) any other details, conditions and particular instructions from the client that specify how the order must be carried out;
(7) the date and exact time of the receipt of the order, or of the decision to deal, by the investment firm.

[Note: article 7 of MiFID Regulation]

01/11/2007

Record-keeping of transactions

COBS 11.5.2

Immediately after executing a client order, or, in the case of investment firms that transmit orders to another person for execution, immediately after receiving confirmation that an order has been executed, investment firms shall record the following details of the transaction in question:

(1) the name or other designation of the client;
(2) the details specified in points 2, 3, 4, 6, and in points 16 to 21, of Table 1 of Annex I;
(3) the total price, being the product of the unit price and the quantity;
(4) the nature of the transaction if other than buy or sell;
(5) the natural person who executed the transaction or who is responsible for the execution.

[Note: article 8(1) of MiFID Regulation]

01/11/2007

COBS 11.5.3

If an investment firm transmits an order to another person for execution, the investment firm shall immediately record the following details after making the transmission:

(1) the name or other designation of the client whose order has been transmitted;
(2) the name or other designation of the person to whom the order was transmitted;
(3) the terms of the order transmitted;
(4) the date and exact time of transmission.

[Note: article 8(2) of MiFID Regulation]

01/11/2007

COBS 11.5.4

Points 2, 3, 4, 6, 16 - 21 of Table 1 of Annex 1 of the MiFID Regulation

Trading day

The trading day on which the transaction was executed.

Trading time

The time at which the transaction was executed, reported in the local time of the competent authority to which the transaction will be reported, and the basis in which the transaction is reported expressed as Co-ordinated Universal Time (UTC) +/- hours.

Buy/sell indicator

Identifies whether the transaction was a buy or sell from the perspective of the reporting investment firm or, in the case of a report to a client, of the client.

Instrument identification

This shall consist of:

-a unique code to be decided by the competent authority (if any) to which the report is made identifying the financial instrument which is the subject of the transaction;-if the financial instrument in question does not have a unique identification code, the report must include the name of the instrument or, in the case of a derivative contract, the characteristics of the contract.

16.

Unit price

The price per security or derivative contract excluding commission and (where relevant) accrued interest. In the case of a debt instrument, the price may be expressed either in terms of currency or as a percentage.

17.

Price notation

The currency in which the price is expressed. If, in the case of a bond or other form of securitised debt, the price is expressed as a percentage, that percentage shall be included.

18.

Quantity

The number of units of the financial instruments, the nominal value of bonds, or the number of derivative contracts included in the transaction.

19.

Quantity notation

An indication as to whether the quantity is the number of units of financial instruments, the nominal value of bonds or the number of derivative contracts.

20.

Counterparty

Identification of the counterparty to the transaction. That identification shall consist of:

-where the counterparty is an investment firm, a unique code for that firm, to be determined by the competent authority (if any) to which the report is made;-where the counterparty is a regulated market or MTF or an entity acting as its central counterparty, the unique harmonised identification code for that market, MTF or entity acting as central counterparty, as specified in the list published by the competent authority of the home Member State of that entity in accordance with Article 13(2);-where the counterparty is not an investment firm, a regulated market, an MTF or an entity acting as central counterparty, it should be identified as 'customer/client' of the investment firm which executed the transaction.

21.

Venue identification

Identification of the venue where the transaction was executed. That identification shall consist in:

-where the venue is a trading venue: its unique harmonised identification code;-otherwise: the code 'OTC'.

01/11/2007

COBS 11.6

Use of dealing commission

01/11/2007

COBS 11.6.1

This section deals with the acceptance of certain inducements by investment managers and builds upon the rule on inducements (COBS 2.3.1 R). Investment managers should ensure they comply with both this section and the rule on inducements.

01/11/2007

Application

COBS 11.6.2

This section applies to a firm that acts as an investment manager when it executes customer orders that relate to:

(1) shares; and
(2)

(a) warrants;
(b) certificates representing certain securities;
(c) options; and
(d) rights to or interests in investments of the nature referred to in (a) to (c);

to the extent that they relate to shares.

01/11/2007

Use of dealing commission to purchase goods or services

COBS 11.6.3

(1) An investment manager must not accept goods or services in addition to the execution of its customer orders if it:

(a) executes its customer orders through a broker or another person;
(b) passes on the broker's or other person's charges to its customers; and
(c) is offered goods or services in return for the charges referred to in (b).

(2) This prohibition does not apply if the investment manager has reasonable grounds to be satisfied that the goods or services received in return for the charges:

(i) are related to the execution of trades on behalf of the investment manager's customers; or
(ii) comprise the provision of research; and

(b) will reasonably assist the investment manager in the provision of its services to its customers on whose behalf the orders are being executed and do not, and are not likely to, impair compliance with the duty of the investment manager to act in the best interests of its customers.

01/11/2007

COBS 11.6.4

(1) Where the goods or services relate to the execution of trades, an investment manager should have reasonable grounds to be satisfied that the requirements of the rule on use of dealing commission (COBS 11.6.3 R) are met if the goods or services are:

(a) linked to the arranging and conclusion of a specific investment transaction (or series of related transactions); and
(b) 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.

(2) Compliance with (1) may be relied upon as tending to establish compliance with the rule on use of dealing commission (COBS 11.6.3 R)

01/11/2007

COBS 11.6.5

(1) Where the goods or services relate to the provision of research, an investment manager will have reasonable grounds to be satisfied that the requirements of the rule on use of dealing commission (COBS 11.6.3 R) are met if the research:

(a) is 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;
(b) whatever form its output takes, represents 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;
(c) has intellectual rigour and does not merely state what is commonplace or self-evident; and
(d) involves analysis or manipulation of data to reach meaningful conclusions.

(2) Compliance with (1) may be relied upon as tending to establish compliance with the rule on use of dealing commission (COBS 11.6.3 R).

01/11/2007

COBS 11.6.6

An example of goods or services relating to the execution of trades that the FSA does not regard as meeting the requirements of the rule on use of dealing commission (COBS 11.6.3 R) is post-trade analytics.

01/11/2007

COBS 11.6.7

Examples of goods or services that relate to the provision of research that the FSA does not regard as meeting the requirements of the rule on use of dealing commission (COBS 11.6.3 R) include price feeds or historical price data that have not been analysed or manipulated to reach meaningful conclusions.

01/11/2007

COBS 11.6.8

Examples of goods or services that relate to the execution of trades or the provision of research that the FSA does not regard as meeting the requirements of either evidential provisions COBS 11.6.4 E or COBS 11.6.5 E include:

(1) services relating to the valuation or performance measurement of portfolios;
(2) computer hardware;
(3) connectivity services such as electronic networks and dedicated telephone lines;
(4) seminar fees;
(5) subscriptions for publications;
(6) travel, accommodation or entertainment costs;
(7) order and execution management systems;
(8) office administrative computer software, such as word processing or accounting programmes;
(9) membership fees to professional associations;
(10) purchase or rental of standard office equipment or ancillary facilities;
(11) employees' salaries;
(12) direct money payments;
(13) publicly available information; and
(14) custody services relating to designated investments belonging to, or managed for, customers other than those services that are incidental to the execution of trades.

01/11/2007

COBS 11.6.9

The reference to research in the rule on use of dealing commission (COBS 11.6.3 R) is not confined to investment research as defined in the Glossary. The FSA's view is that research can include, for example, the goods or services encompassed by investment research, provided that they are directly relevant to and are used to assist in the management of investments on behalf of customers. In addition, any goods or services that relate to the provision of research that the FSA regards as not acceptable under COBS 11.6.6 G or COBS 11.7.6 R should be viewed as not meeting the requirements of COBS 11.6.3R (2), notwithstanding that their content might qualify as investment research.

01/11/2007

COBS 11.6.10

This section applies only to arrangements under which an investment manager receives from brokers or other persons goods or services that relate to the execution of trades or the provision of research. It has no application in relation to execution and research generated internally by an investment manager itself.

01/11/2007

COBS 11.6.11

An investment manager should not enter into any arrangements that could compromise its ability to comply with its best execution obligations (COBS 11.2).

01/11/2007

Rule on prior disclosure

COBS 11.6.12

An investment manager that enters into arrangements under this section must make adequate prior disclosure to customers concerning the receipt of goods or services that relate to the execution of trades or the provision of research. This prior disclosure should form part of the summary form disclosure under the rule on inducements (COBS 2.3.1 R).

01/11/2007

Guidance on prior disclosure

COBS 11.6.13

The rule on prior disclosure of goods and services under this section complements the requirements on the disclosure of inducements (COBS 2.3.1 R (2)(b)). Investment managers should ensure they comply with both requirements where relevant.

01/11/2007

COBS 11.6.14

(1) The prior disclosure required by this section should include an adequate disclosure of the firm's policy relating to the receipt of goods or services that relate to the execution of trades or the provision of research in accordance with the rule on use of dealing commission (COBS 11.6.3 R).
(2) The prior disclosure should explain generally why the firm might find it necessary or desirable to use dealing commission to purchase goods or services, bearing in mind the practices in the markets in which it does business on behalf of its customers. While the appropriate method of making such a disclosure is for the firm to decide, this could, for example, be achieved in a client agreement.

01/11/2007

Rule on periodic disclosure

COBS 11.6.15

If an investment manager enters into arrangements in accordance with the rule on use of dealing commission (COBS 11.6.3 R), it must in a timely manner make adequate periodic disclosure to its customers of the arrangements entered into.

01/11/2007

Adequate prior and periodic disclosure

COBS 11.6.16

Adequate prior and periodic disclosure under this section must include details of the goods or services that relate to the execution of trades and, wherever appropriate, separately identify the details of the goods or services that are attributable to the provision of research.

01/11/2007

COBS 11.6.17

In assessing the adequacy of prior and periodic disclosures made by an investment manager under this section, the FSA will have regard to the extent to which the investment manager adopts disclosure standards developed by industry associations such as the Investment Management Association, the National Association of Pension Funds and the London Investment Banking Association.

01/11/2007

Making periodic disclosures in a timely manner

COBS 11.6.18

(1) A firm will make periodic disclosure to its customers under this section in a timely manner if it is made at least once a year.
(2) Compliance with (1) may be relied upon as tending to establish compliance with the rule on periodic disclosure (COBS 11.6.16 R).

01/11/2007

Record keeping

COBS 11.6.19

An investment manager must make a record of each prior and periodic disclosure it makes to its customers in accordance with this section and must maintain each such record for at least five years from the date on which it is provided.

01/11/2007

COBS 11.7

Personal account dealing

01/11/2007

Rule on personal account dealing

COBS 11.7.1

A firm that conducts designated investment business must establish, implement and maintain adequate arrangements aimed at preventing the following activities in the case of any relevant person who is involved in activities that may give rise to a conflict of interest, or who has access to inside information as defined in the Market Abuse Directive or to other confidential information relating to clients or transactions with or for clients by virtue of an activity carried out by him on behalf of the firm:

(1) entering into a personal transaction which meets at least one of the following criteria:

(a) that person is prohibited from entering into it under the Market Abuse Directive;
(b) it involves the misuse or improper disclosure of that confidential information;
(c) it conflicts or is likely to conflict with an obligation of the firm to a customer under the regulatory system or any other obligation of the firm under MiFID or the UCITS Directive;

(2) advising or procuring, other than in the proper course of his employment or contract for services, any other person to enter into a transaction in designated investments which, if a personal transaction of the relevant person, would be covered by (1) or a relevant provision;
(3) disclosing, other than in the normal course of his employment or contract for services, any information or opinion to any other person if the relevant person knows, or reasonably ought to know, that as a result of that disclosure that other person will or would be likely to take either of the following steps:

(a) to enter into a transaction in designated investments which, if a personal transaction of the relevant person, would be covered by (1) or a relevant provision;
(b) to advise or procure another person to enter into such a transaction.

[Note: article 12(1) of MiFID implementing Directive and article 13(1) of the UCITS implementing Directive]

01/07/2011

COBS 11.7.2

For the purposes of this section, the relevant provisions are:

(1) the rules on personal transactions undertaken by financial analysts in COBS 12.2.5 R (1) and (2);
(2) the rule on the misuse of information relating to pending client orders in COBS 11.3.5 R.

01/11/2007

COBS 11.7.2A

The requirements of this section are without prejudice to article 3(a) of the Market Abuse Directive which prohibits any person who possesses inside information under article 2 of that directive from disclosing that information to any other person unless that disclosure is made in the normal course of the exercise of his employment, profession or duties.

01/11/2007

COBS 11.7.3

For the purposes of COBS 11.7.1R (1)(c), any other obligation of the firm under MiFID refers to a firm's obligations under the regulatory system that are not owed to a customer and any of the firm's obligations under another EEA States' implementation of MiFID where it operates a branch in the EEA.

01/11/2007

COBS 11.7.4

The arrangements required under this section must in particular be designed to ensure that:

(1) each relevant person covered by this section is aware of the restrictions on personal transactions, and of the measures established by the firm in connection with personal transactions and disclosure, in accordance with this section;
(2) the firm:

(a) is informed promptly of any personal transaction entered into by a relevant person, either by notification of that transaction or by other procedures enabling the firm to identify such transactions; or
(b) in the case of outsourcing arrangements, ensures that the service provider to which the activity is outsourced maintains a record of personal transactions entered into by any relevant person and provides that information to the firm promptly on request;

(3) a record is kept of the personal transaction notified to the firm or identified by it, including any authorisation or prohibition in connection with such a transaction.

[Note: article 12(2) of MiFID implementing Directive and article 13(2) of the UCITS implementing Directive]

01/07/2011

Disapplication of rule on personal account dealing

COBS 11.7.5

This section does not apply to the following kinds of personal transaction:

(1) personal transactions effected under a discretionary portfolio management service where there is no prior communication in connection with the transaction between the portfolio manager and the relevant person or other person for whose account the transaction is executed;
(2) personal transactions in units or shares in collective undertakings that comply with the conditions necessary to enjoy the rights conferred by the UCITS Directive or are subject to supervision under the law of an EEA State which requires an equivalent level of risk spreading in their assets, where the relevant person and any other person for whose account the transactions are effected, are not involved in the management of that undertaking;
(3) personal transactions in life policies.

[Note: article 12(3) of MiFID implementing Directive and article 13(3) of the UCITS implementing Directive]

01/07/2011

COBS 11.7.6

For the purposes of this section, a person who is not:

(1) a director, partner or equivalent, manager or appointed representative (or, where applicable, a tied agent) of the firm; or
(2) a director, partner or equivalent, or manager of any appointed representative (or where applicable, a tied agent) of the firm;

will only be a relevant person to the extent that they are involved in the provision of designated investment business or collective portfolio management services.

01/07/2011

Successive personal transactions

COBS 11.7.7

Where successive personal transactions are carried out on behalf of a person in accordance with prior instructions given by that person, the obligations under this section do not apply:

(1) separately to each successive transaction if those instructions remain in force and unchanged; or
(2) to the termination or withdrawal of such instructions, provided that any financial instruments which had previously been acquired pursuant to the instructions are not disposed of at the same time as the instructions terminate or are withdrawn.

Obligations under this section do apply in relation to a personal transaction, or the commencement of successive personal transactions, that are carried out on behalf of the same person if those instructions are changed or if new instructions are issued.

[Note: recital 17 to MiFID implementing Directive]

01/11/2007

COBS 11.8

Recording telephone conversations and electronic communications

06/03/2009

Application - Who?

COBS 11.8.1

This section applies to a firm:

(1) which carries out any of the following activities:

(a) receiving client orders;
(b) executing client orders;
(c) arranging for client orders to be executed;
(d) carrying out transactions on behalf of the firm, or another person in the firm's group, and which are part of the firm's trading activities or the trading activities of another person in the firm's group;
(e) executing orders that result from decisions by the firm to deal on behalf of its client;
(f) placing orders with other entities for execution that result from decisions by the firm to deal on behalf of its client;

(2) to the extent that the activities referred to in (1) relate to:

(a) qualifying investments admitted to trading on a prescribed market;
(b) qualifying investments in respect of which a request for admission to trading on such a market has been made;
(c) investments which are related investments in relation to such qualifying investments.

06/03/2009

COBS 11.8.2

This section does not apply to the carrying on of the following activities:

(1) activities carried on between operators, or between operators and depositories, of the same collective investment scheme (when acting in that capacity);
(2) corporate finance business;
(3) corporate treasury functions.

06/03/2009

COBS 11.8.3

This section does not apply to the following firms or persons:

(1) a service company;
(2) a non-directive friendly society;
(3) a non-directive insurer;
(4) a UCITS qualifier.

06/03/2009

Application - Where?

COBS 11.8.4

This section applies only with respect to a firm's activities carried on from an establishment maintained by the firm in the United Kingdom.

06/03/2009

Recording telephone conversations, etc

COBS 11.8.5

A firm must take reasonable steps to record relevant telephone conversations, and keep a copy of relevant electronic communications, made with, sent from or received on equipment:

(1) provided by the firm to an employee or contractor; or
(2) the use of which by an employee or contractor has been sanctioned or permitted by the firm;

to enable that employee or contractor to carry out any of the activities referred to in COBS 11.8.1 R.

06/03/2009

COBS 11.8.6

The obligation in COBS 11.8.5 R does not apply to:

(1) telephone conversations and electronic communications (except emails) made with, sent from or received on a mobile telephone or other mobile handheld electronic communication device; or
(2) a discretionary investment manager, in respect of telephone conversations or electronic communications made with, sent to or received from a firm which the discretionary investment manager reasonably believes is subject to the recording obligation in COBS 11.8.5 R in respect of that conversation or communication; or
(3) a discretionary investment manager, in respect of telephone conversations or electronic communications made with, sent to or received from a person who is not subject to the recording obligation in COBS 11.8.5 R, provided that such telephone conversations or electronic communications are made with, sent to or received from such persons on an infrequent basis, and represent a small proportion of the total telephone conversations and electronic communications made, sent or received by the discretionary investment manager to which COBS 11.8.5 R apply.

06/03/2009

COBS 11.8.7

Electronic communications includes communications made by way of facsimile, email and instant messaging devices.

06/03/2009

COBS 11.8.8

For the purposes of COBS 11.8.5 R, a relevant conversation or communication is any one of the following:

(1) a conversation or communication between an employee or contractor of the firm with a client, or when acting on behalf of a client, with another person, which concludes an agreement by the firm to carry out the activities referred to in COBS 11.8.1 R as principal or as agent;
(2) a conversation or communication between an employee or contractor of the firm with a professional client or an eligible counterparty, or when acting on behalf of a professional client or an eligible counterparty, with another person, which is carried on with a view to the conclusion of an agreement referred to in (1) above, and whether or not it is part of the same conversation or communication as in (1).

06/03/2009

COBS 11.8.9

(1) COBS 11.8.8R (2) includes conversations and communications relating to specific transactions which are intended to lead to the conclusion of an agreement by the firm to deal with or on behalf of the client as principal or agent, even if those conversations or communications do not lead to the conclusion of such an agreement. It does not include conversations or communications which are not intended to lead to the conclusion of such an agreement, such as general conversations or communications about market conditions.
(2) The FSA would not usually expect the obligation in COBS 11.8.5 R to include conversations or communications made by investment analysts, retail financial advisers, and persons carrying on back office functions, as such persons will not normally make relevant conversations or communications when acting in those capacities.

06/03/2009

Retention of records

COBS 11.8.10

A firm must take reasonable steps to retain all records made by it under COBS 11.8.5 R:

(1) for a period of at least 6 months from the date the record was created;
(2) in a medium that allows the storage of the information in a way accessible for future reference by the FSA, and so that the following conditions are met:

(a) the FSA must be able to access the records readily;
(b) it must be possible for any corrections or other amendments, and the contents of the records prior to such corrections and amendments, to be easily ascertained;
(c) it must not be possible for the records to be otherwise manipulated or altered.

06/03/2009