COBS 11.3 Client order handling

General principles

COBS 11.3.1RRP
  1. (1)

    A firm (other than a UCITS management company3 providing collective portfolio management services)1 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 28(1)3 of MiFID]

  1. (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 28(1)3 of MiFID]

  1. (3)

    A UCITS management company3 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.1

[Note: article 27(1) first paragraph of the UCITS implementing Directive]1

COBS 11.3.1AR
  1. (1)

    3Subject to (2) and (3) in this chapter provisions marked “EU” apply to a firm’s business other than MiFID business as if they were rules.

  2. (2)

    Provisions marked “EU” which derive from recitals to MiFID or the MiFID Org Regulation apply to all firms as guidance.

  3. (3)

    COBS 11.3.4AEU, which reproduces article 67(2) of the MiFID Org Regulation, does not apply to a UCITS management company.

COBS 11.3.2RRP

[deleted]3

COBS 11.3.2AEU

3Article 67(1) of the MiFID Org Regulation requires firms to satisfy conditions when carrying out client orders.

67 (1) Investment firms shall satisfy the following conditions when carrying out client orders:

(a) ensure that orders executed on behalf of clients are promptly and accurately recorded and allocated;

(b) carry out otherwise comparable client 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;

(c) inform a retail client about any material difficulty relevant to the proper carrying out of orders promptly upon becoming aware of the difficulty.

COBS 11.3.3GRP

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 1103 to the MiFID Org Regulation3]

COBS 11.3.4RRP

Where a management company3 executes the order itself in the course of providing collective portfolio management services,1 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 UCITS scheme3.

[Note:3 article 27(1) third paragraph of the UCITS implementing Directive]1

1
COBS 11.3.4AEU

3Article 67(2) of the MiFID Org Regulation places requirements on firms which are responsible for overseeing and arranging the settlement of an executed order.

67 (2) Where an investment firm is responsible for overseeing or arranging the settlement of an executed order, it shall 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.

COBS 11.3.5RRP

[deleted]3

COBS 11.3.5AEU

3Article 67(3) of the MiFID Org Regulation sets out requirements concerning the use of information relating to pending client orders.

67 (3) An investment firm shall 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.

COBS 11.3.6GRP

Without prejudice to the Market Abuse Regulation2, for the purposes of the provision3 on the misuse of information (see COBS 11.3.5AEU3), 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 1103 to the MiFID Org Regulation3]

Aggregation and allocation of orders

COBS 11.3.7RRP

[deleted]3

COBS 11.3.7AEU

3Article 68(1) of the MiFID Org Regulation sets out requirements to be met where a firm carries out a client order or a transaction for own account in aggregation with another client order.

68 (1) Investment firms shall not carry out a client order or a transaction for own account in aggregation with another client order unless the following conditions are met:

(a) it is unlikely that the aggregation of orders and transactions will work overall to the disadvantage of any client whose orders is to be aggregated;

(b) it is 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;

(c) an order allocation policy is established and effectively implemented, providing 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.

COBS 11.3.7BR

3A management company must ensure that the order allocation policy referred to in article 68(1)(c) of the MiFID Org Regulation, reproduced at COBS 11.3.7AEU, is in sufficiently precise terms.

[Note: article 28(1) of the UCITS implementing Directive]

COBS 11.3.8RRP

[deleted]3

COBS 11.3.8AEU

3Article 68(2) of the MiFID Org Regulation sets out requirements concerning partial execution of aggregated client orders.

68 (2) Where an investment firm aggregates an order with one or more other client orders and the aggregated order is partially executed, it shall allocate the related trades in accordance with its order allocation policy.

Aggregation and allocation of transactions for own account

COBS 11.3.9RRP

[deleted]3

COBS 11.3.9AEU

3Article 69(1) of the MiFID Org Regulation sets out requirements concerning aggregated transactions.

69 (1) Investment firms which have aggregated transactions for own account with one or more client orders shall not allocate the related trades in a way that is detrimental to a client.

COBS 11.3.10RRP

[deleted]3

COBS 11.3.10AEU

3Article 69(2) of the MiFID Org Regulation sets out allocation priorities where a firm aggregates a client order in accordance with its allocation policy referred to in article 68(1)(c) (see COBS 11.3.7AEU).

69 (2) Where an investment firm aggregates a client order with a transaction for own account and the aggregated order is partially executed, it shall allocate the related trades to the client in priority to the firm.

Where an investment firm aggregates a client order with a transaction for own account and the aggregated order is partially executed, it shall allocate the related trades to the client in priority to the firm. Where an investment 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 referred to in Article 68(1)(c).

COBS 11.3.11RRP

[deleted]3

COBS 11.3.11AEU

3Article 69(3) of the MiFID Org Regulation introduces requirements for order allocation policy, referred to in article 68(1)(c) (see COBS 11.3.7AEU), where transactions for own account are executed in combination with client orders.

69 (3) As part of the order allocation policy referred to in Article 68(1)(c), investment firms shall put in place procedures designed 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.

COBS 11.3.12GRP

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 1093

to the MiFID Org Regulation3]

COBS 11.3.13GRP

In this section, carrying out client orders includes:

  1. (1)

    the execution of orders on behalf of clients;

  2. (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;1

  3. (3)

    the transmission of client orders to other entities for execution when providing the service of reception and transmission of orders.

Transposition of client order handling provisions in the UCITS Implementing Directive

COBS 11.3.14G
  1. (1)

    3This section applies to a UCITS management company as a result of COBS 18.5B.2R.

  2. (2)

    The provisions of the MiFID Org Regulation reproduced in this section apply to a UCITS management company as a result of COBS 11.3.1AR.

  3. (3)

    Some of these provisions have been used to transpose provisions of the UCITS implementing Directive, as set out in the table below:

    MiFID Org Regulation Provision

    COBS 11.3 provision

    UCITS implementing Directive transposition

    article 67(1)

    COBS 11.3.2AEU

    article 27(1) second paragraph

    article 67(3)

    COBS 11.3.5AEU

    article 27(2)

    article 68(1)

    COBS 11.3.7AEU, as modified by COBS 11.3.7BR

    article 28(1)

    article 68(2)

    COBS 11.3.8AEU

    article 28(2)

    article 69(1)

    COBS 11.3.9AEU

    article 28(3)

    article 69(2)

    COBS 11.3.10AEU

    article 28(4)