The Markets in Financial Instruments Directive (MiFID) has been in force since 1 November 2007. The purpose of the Directive is to ensure transparency of the information we communicate to our clients. Explanations of BNP Paribas Asset Management’s (BNPP AM) current practises and policies.
A – Our best execution and selection policy
Our objective is to outline our current practises and as well as future intentions regarding our policy in relation to our brokers’ best selection policy and best execution owed by these brokers. We would also like to provide a summary of consequences relating to the reception and transmission of orders and, where necessary, our policy concerning the negotiation of orders when we act as a counterparty in the market.
The current document is intended to provide information on the current status of our policies. This is subject to change in consultation with, and after the following decisions taken by, groups such as: The financial authority (Autorité des marchés financiers – AMF) in France, other European regulators and ESMA (European Securities and Markets Authority). Our policies and procedures may also change in response to future developments as a result of their implementation by the various EU member states.
The Markets in Financial Instruments Directive (MiFID) has provided BNPP AM with an opportunity to clarify our implementation of investment decisions and implementation procedure as it applies to the management of mandates and our investment funds, by defining and activating an execution policy on the selection of intermediaries, procedures undertaken and reporting systems.
This policy includes:
- The principles governing the execution of orders by brokers;
- The principles governing order execution according to: type of order, price, costs, speed and likelihood of execution, size of order and other criteria relevant to the execution of the order.
BNPP AM considers best execution to be an ongoing process and has established a permanent supervisory body through the Global Counterparty Committee to enable BNPP AM to obtain the best possible result for its clients.
BNPP AM, as an asset manager, should review, adjust and when necessary add to the efficiency of its policy. The Directive requires us to inform our clients of the MiFID policy.
B – Scope and classification of our clients
As an asset manager, BNPP AM provides portfolio management services on behalf of third parties. In this capacity, BNPP AM also transmits orders in financial instruments as an extension of the investment procedures it has developed in order to be able to manage the mandates and investment funds for which it is responsible.
BNPP AM transmits orders in financial instruments both directly and through BNP Paribas Dealing Services. The main financial instruments that may be involved are equities, bonds, listed derivative instruments and OTC derivatives.
We owe the obligations of this selection and execution policy to all of our clients, who are considered, in principle, ‘professional clients’ within the meaning of MiFID.
This policy seeks to define the most appropriate means to ensure best execution for each class of financial instruments in accordance with our defined investment policy and execution venues.
C – BNPP AM selects its brokers and checks their execution policies in the interest of its clients
BNPP AM has already had a formal methodology for selecting brokers since 1998; it is based on their ability to offer services in accordance with the relevant traded instrument: the best advice, the best execution price, the best quality of execution and even, if applicable, an appropriate technology platform etc.
A formal review of the selection process takes place at least once a year. However, BNPP AM checks the quality of its brokers on an ongoing basis and issues may be escalated to the Global Counterparty Committee that meets quarterly.
BNPP AM has established a combination of several negotiation functions. This gives it the opportunity to choose from among the selected brokers, depending on the financial instrument and fund concerned. We look for the broker providing execution in line with BNPP AM’s best execution policy regarding three key points: financial instrument, management policies applied to the mandate or fund and type of order.
BNPP AM and its partners have, for their clients, established several management policies specific to each management team in accordance with the nature of the investment procedure.
Each management team combines an investment procedure with an order placement procedure that in particular selects criteria and defines priorities and, if necessary, locations for execution for the financial instruments used.
If necessary, additional arrangements will apply to capital operations, especially initial public offerings, private placements and public offers on the secondary market.
D – BNPP AM and its partners trade or may trade as counterparty in certain financial instruments
In line with market practises and in order to be consistent with the management procedures to which it wishes to adhere, BNPP AM may obtain market access directly, or through BNP Paribas Dealing Services, in certain jurisdictions, principally for fixed income instruments and OTC instruments or cash platforms.
In practice, for such transactions, certainly fixed income instruments or OTC products, this means BNPP AM and/or BNP Paribas Dealing Services can trade as the direct counterparty of the market maker. BNPP AM undertakes, within the meaning of the European Directive, to ‘take all reasonable steps to obtain the best possible result for their clients.’
If possible and normally, BNPP AM will favour the organisation of a bidding process in instruments negotiated bilaterally in preparation for transaction negotiation.
E – Commitments, controls and compliance
BNPP AM undertakes to take all reasonable steps which allow best execution for its clients either through the selection of its brokers or by acting as counterparty in the markets concerned. BNPP AM is happy to share with its clients the information of all the execution procedures of the orders executed for them and show them how these procedures are tied to our execution policy.
If BNPP AM receives specific instructions from the client relating to order execution and its mandate or specific investment fund, BNPP AM will follow these instructions and, as a result, will not be subject to its best execution obligations applicable to the type or types of financial instruments affected by these specific instructions. These specific instructions are fully compatible with the contractual provisions stipulated in advance when the mandate or commitments for an investment fund are signed.
F – Reviewing our selection and execution policies
The Global Counterparty Committee operates as a forum for discussing, deciding and monitoring commercial, operational, compliance, legal and risk issues relating to appropriate counterparties. This committee is headed by the head of the Counterparty Risk department, or in his absence, the head of the Credit and Investment Compliance department. Moreover, BNPP AM has established a formal system for reviewing and controlling the best execution policy and this policy is reviewed at least once a year.
G – Approval by our clients of our selection and execution policy
BNPP AM must obtain client approval for the application of the policy in the context of our collaboration. The current policy in an integral part of BNPP AM’s contractual relationship with its clients. BNPP AM will assume that the client tacitly consents if it does not raise any specific objection within one month after receiving the policy or was made aware of an updated policy.
H – With whom do you contact BNPP AM?
For further information, please contact your client relationship manager.