Easyvest, in its portfolio management business, executes transactions in financial instruments to build and manage its clients' portfolios. These transactions, or "orders", must be executed in an optimal manner, i.e., seek the best result for the Easyvest's client in terms of transaction price, costs, probability of execution, and settlement. The following document describes how Easyvest ensures this optimal execution.
Easyvest adopts the following principles as its policy for the optimal execution of portfolio management client orders:
Easyvest transmits the orders it wishes to execute in portfolio management to one (or more) regulated companies with which it collaborates and subcontracts the order execution activity. This is known as an "RTO" service for Receipt and Transmission of Orders executed by another regulated company. It is therefore up to this third-party company to ensure the best selection and best execution of the orders. Nevertheless, Easyvest controls that these obligations are fulfilled.
Easyvest only works with trackers that are traded on the regulated market Euronext. This choice is dictated on the one hand by Easyvest's investment strategy, and on the other hand to enable Easyvest to guarantee its pricing policy. Easyvest ensures that the trackers it selects have sufficient market makers and have a low spread in normal times.
Easyvest requires its order executors to provide it with access to real-time bid/ask price/quantity information so that it can transmit buy and sell orders at the time it deems most appropriate, either at market price or at a limit price.
Easyvest is allowed, within the limits set by the regulations, to transmit to the market aggregated orders, i.e., buy or sell orders that it transmits to the market at once for a single execution, but which are in fact intended for several clients. This is done to reduce brokerage fees per portfolio and thus enhance the long-term performance of clients. Easyvest ensures that there is sufficient depth of market for each order and provides a procedure for allocating clients if an order is only partially filled. passes.
Easyvest monitors the performance of the best execution. If the execution proves to be sub-optimal, Easyvest shall review this policy and its procedures.
Easyvest follows the following procedures to implement its best execution policy in the context of the portfolio management.
Easyvest maintains a table of the financial instruments used in portfolio management, the places where they are processed, the intermediaries used for this processing and the criteria used to execute an order in an optimal manner.
Place of execution
Euronext regulated market
RTO via order executor(s) collaborating with Easyvest
Price, bid ask spread, depth, costs, number of market makers, speed of execution
The mechanisms for selecting subcontractors to execute orders is the subject of another document in the accreditation file (see 3.15 Policy and procedures for selecting order executors with whom Easyvest will collaborate).
These subcontractors are regulated companies also subject to their own best execution policies and procedures. Easyvest relies on the procedures of these subcontractors and ensures that they are adequate.
The Figure 1: Transmission and execution diagram of an order shows the flow of execution of an order on a tracker with the order executor collaborating with Easyvest.
Figure 1 Diagram of the transmission and execution of an order
Easyvest uses the law of supply and demand, which prevails on a regulated market like Euronext, to select the best order executor. Indeed, on a tracker, market makers offer a buy or sell price for a given quantity of trackers. The order that is placed is the one that offers the best price for the buyer or seller. The law of the market leads de facto to the best selection.
Easyvest's management department transmits the orders to the order executors. The procedure for a stock market order on a portfolio is as follows:
The management department calculates the rebalancing and the necessary transactions on a portfolio by clicking on the "Rebalance" button from the detail screen of a portfolio. This opens a program that calculates the allocations recommended by Easyvest's management strategy. The program selects the specific financial instruments - to be processed in accordance with its management policy and model portfolios - as well as the place of execution.
From this program, the staff member who is about to transmit an order controls the spread, which must be small (ideally less than 0,5%), and the depth of the market, which must be large enough to offer the quantity requested for buying or selling and to maximize the probability of the order being executed. This data is provided by a (near-)real time integration between Easyvest's IT system and that of the order executor.
If the spread is too wide, the depth too low or the volatility too high, the staff member can place the order with a limit price in order to limit the risk of the average execution price deviating too far from the intrinsic value of the underlying of the traded instrument.
Once the order(s) have been correctly simulated and set up, the staff member presses the "Execute" button. The program displays a summary of the transactions planned and asks the staff member to validate again.
Once validated in Easyvest's IT system, the order is automatically connected to the IT system of the order executor, which in turn places the order on the market for execution.
The staff member monitors the progress of the order in the allocation program, which receives data from the IT system of her order executor. For example, the staff member who places an order with a price limit should see her order block and the requested price limit in the market depth book. The staff member is also informed when the order is placed.
If an order entered with a limit price is not executed (i.e., the limit price is too far away from the market price), the staff member can update the order by cancelling it outright or by adjusting the limit price to bring it closer to the market price.
Easyvest archives the order form in its IT system for reference. This slip is a copy of the information provided and archived by the order executor in its own IT system.
The archived slip is made immediately available to the client in her web app or mobile app, as well as in the reports provided to her. As required by law, Easyvest provides at least the following information on these slips: client reference, transmitting member of staff, date and time of the transaction, type of order (e.g., at market price, limit price), place of execution, direction of the transaction (i.e., purchase or sale), quantity, price, gross amount, fees, taxes, net amount.
The management department, within Easyvest's sales department, can place bulk orders on the portfolios under management in order to reduce brokerage costs and guarantee its pricing policy.
Easyvest's bundling procedure works as follows. This procedure ensures compliance with regulatory requirements, namely that bundling does not put one client at a disadvantage compared to another, that the client is informed of this bundling policy and that Easyvest adopts a mechanism to allocate to the client when an order is not carried out completely:
Easyvest may send aggregated orders to the market twice a day. Once in the morning, around 10am, shortly after Euronext opens. A second time in the afternoon, around 4pm, after the opening of the US market, which can influence the price of the trackers used. These windows are optional: Easyvest is not obliged to use them. For example, if the number of transactions is too low, the management department may decide to include these transactions in the next grouping window.
The management department composes the buy and sell rebalancing book across all client portfolios. This book is generated by Easyvest's asset allocation program. The book is a list of transactions to be carried out, aggregated by financial instrument and by type of operation (purchase or sale). This list includes the total number of transactions to be executed and the breakdown by client portfolio.
Easyvest implements a mechanism for prioritizing the allocation of orders to clients that are executed in the market. To do this, Easyvest randomly sorts the client portfolios in the order book. In concrete terms, Easyvest's rebalancing IT program uses a classical randomization algorithm to determine the priority of portfolios. If the order book is not executed in full, the randomization process is reapplied in the next grouped order sending window. In particular, the order book is completely rerandomized, with the effect that a client's priority order is redefined at each firing window.
Easyvest ensures that limit orders are placed when order quantities are larger than the immediate market depth. The objective is that the spread between the buy and sell price should not exceed +/- 0,5% on an equity tracker and +/-0,3% on a bond tracker.
Easyvest transmits the order book to the order executor, including the priority allocation key for each client, so that the executor can break down the orders executed in each portfolio.
The staff member follows the same procedures for the execution of a bundled order as for a single order.
In addition, Easyvest adopts the following procedures for the execution of orders:
Easyvest informs the client of its best execution policy and procedures in its portfolio management agreement. In particular, it indicates its order bundling policy and draws attention to the fact that an immediate order is placed at the market price, whereas a limit order has a probability of non-execution. More information on this policy is available to the client on request. Easyvest undertakes to provide the client with records of executed orders.
The staff members of the portfolio management function are trained in the policy and in the proper application of its procedures for best order execution.
The portfolio management function and the risk management department jointly monitor annually the effective tracking error observed on the trackers in the portfolio. They also monitor annually that the spread has been consistently acceptable on average, i.e., below 0,5% for an equity tracker and below 0,3% for a bond tracker. Finally, they annually reassess the relevance of the recommended trackers in the model portfolios from a best execution
This policy and these procedures are reviewed annually, and updated, if necessary, by the Management Committee on the basis of analysis and recommendation by the portfolio management and risk management departments.
The Risk Manager is responsible for enforcing this policy and implementing these procedures within Easyvest.