Multiple Marketplaces & Best Execution Policy
Background and Scope
This document provides a summary of the policies and procedures of PI Financial Corp. and its affiliates (collectively PI) designed to provide best execution to clients. These policies and procedures may affect the manner in which client trades are conducted.
These policies and procedures apply to all trading conducted for retail and as agent for institutional clients. For institutional customers, PI may not have a best execution obligation if an institution asks PI for a bid or offer or if PI contacts an institution seeking a bid or offer such that PI and the institution will be acting as counterparties rather than the institution using PI as its agent to fill an order.
1. Canadian Listed Securities
Orders for Canadian-listed securities may be executed on the Toronto Stock Exchange (“TSX”), the TSX Venture Exchange (“TSXV”), the Canadian Securities Exchange (“CSE”), the NEO Stock Exchange (“NEO”), a number of alternative Canadian electronic marketplaces, or on a foreign organized regulated market.
The alternative Canadian electronic marketplaces which PI accesses, or may access, are:
- Nasdaq CXC *
- Nasdaq CXD
- Nasdaq CX-2 *
- NEO-Lit *
- NEX *
- Omega *
- PURE *
All orders for listed securities entered into Canadian marketplaces are subject to the Order Protection Rule, under which a dealer cannot execute a purchase at a lower price or a sale at a higher price than the best available bid or offer on any protected marketplace. A marketplace may be unprotected because its bids and offers are not public, because tradeable orders are not executed immediately on entry, or because its share of trading is too small.
PI is committed to use all reasonable efforts to ensure that our clients achieve “best execution” of their orders for securities that are quoted or traded on all marketplaces. This means that PI will diligently pursue the execution of each client order on the most advantageous execution terms reasonably available under the circumstances.
More specifically, it means that in determining “best execution”, PI will take into consideration a number of general factors including but not limited to:
- the price at which the trade would occur;
- the speed of execution;
- the certainty of execution, taking into account:
- the size of the order;
- the reliability of quotes from the marketplace or counterparty;
- the market liquidity;
- opportunity cost (the missed opportunity to trade at a better price when an order is not completed at the most advantageous time);
- for unprotected marketplaces, whether the displayed volume on protected marketplaces has historically not been adequate to execute on advantageous terms, and whether the unprotected marketplace has historically demonstrated a reasonable likelihood of liquidity. “Unprotected” means that trades can occur on other marketplaces outside the best bids or offers posted on those marketplaces;
- the overall cost of the transaction, which may be affected by:
- foreign exchange, including the foreign exchange risk to settlement; and
- settlement costs.
In its effort to achieve best execution, PI uses electronic “smart routers” which will seek the best marketplace(s) at the time of entry. The “best marketplace” is the marketplace with the best bid (buy price) or ask (sell price) or where the order has the highest probability of being executed.
2. Default Marketplaces
Unless notified otherwise by PI, the Default Marketplaces for all securities listed on the TSX, TSXV, CSE, or NEO whether or not the security is trading on other alternate marketplaces, will be the TSX, TSXV, CSE, or NEO. These exchanges operate between 9:30 am and 4:00 pm EST, Monday through Friday, not including statutory holidays in Ontario. All references to EST in this document are references to Eastern Standard Time or Eastern Daylight Savings Time as appropriate.
3. Hours of Operation for Trading in Listed Canadian Securities
PI Investment Advisors, trading staff and systems will be available for order execution during Default Marketplace hours. Staff may be available outside of Default Marketplace hours; however, PI will not guarantee the ability to take client orders and/or effect trade execution outside of the hours of 9:30 am to 4:00 pm EST.
Clients should be aware in requesting a trade outside of normal trading hours my result in an inferior execution because of factors such as lower liquidity, high volatility, wider spreads, price differentials between marketplaces with extended hours and exaggerated reactions to new announcements.
4. Standard Order Routing Conditions
- Orders received prior to the Default Marketplace opening (9:30 am EST) are queued in the smart routers and will be routed to the best marketplace(s) at the opening of the Default Marketplace that day.
- Orders received after the Default Marketplace closes (4:00 pm EST) are queued in the smart router and will be routed to the best marketplace(s) at the opening of the Default Marketplace on the following business day.
- An order received during the Default Marketplace operating hours is handled by the smart routers, which will seek the best marketplace(s) at the time of entry. The smart routers canvass some dark marketplaces first to determine whether there is any hidden liquidity that would permit the order to be executed at the best available price. Where an order can be executed at the best available price on both protected marketplaces and a marketplace with a speed bump (a delay between entry and execution), the SOR directs the relevant portion of the order to the marketplace with the speedbump first.
- Any portion of an order that cannot be immediately filled will be entered on the Default Marketplace and will remain in the Default Marketplace order book until the order is filled, expired, changed or cancelled. Once entered into the Default Marketplace order book, PI will not monitor the prices on other marketplaces or move it to another marketplace.
- Changes to an outstanding order, or portion of an outstanding order, will be handled the same as a new order received and will be treated according to routing conditions (a) through (d) above. In other words, it will be entered into the best marketplace(s) at the time of the change and then the unfilled balance will be entered on the Default Marketplace and will remain in the Default Marketplace order book until the order is filled, expired, changed or cancelled.
- Orders with expiry dates normally expire when the Default Marketplace closes. Orders booked to the TSE remain open on the expiry day if they are at the last traded price on the TSE, in which case they expire when TSE afterhours market closes at 5.00 pm EST. This proviso is applicable to all references to order expiry in this disclosure.
5. Order Execution
Certain types of orders have specific handling implications in a multiple marketplace environment as follows:
- Day Orders
Day Orders are orders that expire if they are not executed the day that they are booked to the marketplace. Day Orders will be handled in accordance with the “Standard Order Routing Conditions”. All Day Orders expire, if not filled in full, upon the close of the marketplace where the last portion of the order remains effective, unless otherwise agreed to between the client and the Investment Advisor.
- Good Til Cancelled (Open) Orders
Open Orders are orders that will remain valid until a specified date of expiry. These orders will be entered in the Default Marketplace if they are not immediately executable at the time of entry. The order will remain in the Default Marketplace until executed or expiry, whichever comes first.
The Default Marketplaces have rules relating to maximum Order Duration (the length of time that Open Orders are permitted to remain open on that marketplace) which specify that Open Orders will expire after 90 days if not amended.
- Market Orders
Market Order are orders to buy or sell a security at whatever prices are available in the marketplace to help ensure a complete fill. Upon entry to the marketplace, these orders require immediate completion. Market Orders will be handled in accordance with the “Standard Order Routing Conditions”. These orders will expire, if not filled in full, on the marketplace where the last portion of the order remains live, at the close of the marketplace.
- Limit Orders
Limit Orders are orders at a specific minimum sale price or maximum purchase price that is not to be exceeded. Limit Orders will be handled in accordance with the “Standard Order Routing Conditions”. Limits orders will expire, if not filled in full, upon the close of the marketplace where the last portion of the order remains live.
- Special Terms Orders
Special Terms Orders are orders with specific terms, typically related to non-standard settlement terms, which are not executable in the regular marketplace. Special Terms Orders will be executed by PI’s trading desk and will only be entered to the Special Terms Market of the Default Marketplace, unless they are immediately executable on an alternative marketplace at the time of entry. Special Terms Orders will expire at the close of the Default Marketplace.
- Stop Limit Orders & Stop Loss Orders
Stop Limit Orders are orders that become limit orders when a standard trading unit is traded at, or superior to, the stop loss price on the marketplace in which the order has been booked.
Stop Limit Orders will only be entered in the Default Marketplace order book, and will remain there until the order is executed or expires, whichever comes first.
Stop Loss Orders are orders which become market orders when a standard trading unit is traded at, or superior to, the stop loss price on the marketplace in which the order has been booked. Because of the negative impact which Stop Loss Orders can have on market integrity and because they may have a negative impact on the price our clients receive in volatile markets, PI does not accept Stop Loss Orders.
6. Foreign Organized Regulated Marketplaces
PI does not bulk send orders for interlisted securities to foreign intermediaries for execution on foreign organized regulated markets.
PI’s smart routers do not check US markets for inter-listed securities.
Subject to compliance with the Order Protection Rule, PI will follow the instructions of an institutional client to use a trading algorithm that requests that an order to be split between Canadian and foreign markets.
Orders received from US broker-dealers are traded through systems that do check US markets for inter-listed securities in obtaining best execution for those dealers.
7. Orders for Securities Traded Only on Foreign Markets
PI directs all of its retail orders for securities traded only in US markets through Citadel Securities LLC. (“Citadel”).
Orders for securities traded only on marketplaces in countries other than Canada and the US are directed to Fidelity Clearing Canada ULC (“Fidelity”) for execution on those markets through its affiliates.
Citadel and Fidelity both have extensive best execution policies and procedures which cover execution of orders directed to them by PI. PI reviews these policies and procedures annually.
8. Disclosure of Marketplace
An order executed on one or more marketplace or alternative marketplace will be disclosed on the confirmation slip. When an order has been executed on multiple marketplaces, the identity of the specific marketplaces on which the order was filled is available on request.
9. Extenuating Circumstances
In the event of technical or other issues that limit PI’s access to specific marketplaces, or limit access to routing automation, orders received will be directed to either the Default Marketplace or an alternative marketplace as circumstances warrant and as determined at the sole discretion of PI.
10. Fair Pricing of Fixed Income and other Over-the-Counter (OTC) Trades
PI is committed to ensure that trades in fixed income and other OTC securities are priced fairly and reasonably.
PI trades for retail account only on an agency basis – it does not hold or price a fixed income inventory for sale to retail customers.
In determining whether the securities are priced fairly and reasonably, PI considers
- the fair market value of the securities and of any securities exchanged or traded in connection with the transaction;
- the availability of the securities involved in the transaction
- the expense involved in effecting the transaction;
- that PI is entitled to a reasonable profit; and
- the total dollar amount of the transaction.
A ‘fair and reasonable” price must bear a reasonable relationship to the prevailing market price of the security. For hard to price securities, where there is no prevailing market showing recent prices, PI considers:
- the price of the most recent transactions in the security;
- intervening events that might indicate that the price of the most recent transaction would not represent a reasonable current price, such as material changes in interest rates or announcements by the issuer; and
- transaction prices for similar issuers, considering such factors as yield, credit quality, features and ratings.
Where necessary and feasible, PI attempts to obtain prices from three sources including on-line quotations, daily quotation spreadsheets from other dealers, or responses from other dealers to requests for a quotation.
11. Commodity Futures
PI trades in commodity futures traded on various exchanges, including the Chicago Board of Trade, the Intercontinental Exchange, the Chicago Mercantile Exchange (including the International Monetary Market), the New York Mercantile Exchange.
All orders for commodities futures are directed through ADM Investor Services Inc. (“ADM”), a registered commodity futures clearing firm. and are executed only at the prevailing price on the relevant market or the limit price of the order.
12. Conflicts of Interest
PI does not accept payment for order flow (other than credits we may receive from some marketplaces for active or passive orders) and does not pass on the cost of trade execution to clients.
PI does not have ownership interests in any marketplaces through which it trades or other dealers to which it directs client orders.
PI monitors the quality of executions through all trading processes and adjusts them to ensure they continue to provide reasonable assurance of best execution.
PI reviews its best execution policies and procedures at least annually and whenever there is a material change in the trading environment, for example the launch of a new marketplace, and adjusts them as necessary.
PI reviews the best execution policies and procedures of any other dealers it relies on to provide best execution to clients to ensure that they are reasonably designed to do so.
14. Amendments to this Disclosure
Changes to PI’s policies relating to best execution may be made from time-to-time at the sole discretion of PI. Material changes to those policies will be posted to PI’s website www.pifinancialcorp.com.
If you have any questions or concerns regarding these policies, please contact your Investment Advisor.