General Principles for Executing Orders
This English translation is provided solely for your convenience. It is not binding for the Bank. The German text is the sole authoritative version and shall prevail in the event of a dispute. You can request the German version from us at any time.
Investment firms are required to ensure that orders from customers to buy or sell financial instruments are executed in accordance with a written policy which aims to produce the best-possible result for the customer.
This does not mean that the execution of each order must actually produce the best result. Rather, the deciding factor is whether the procedure used typically produces the best possible result for the customer.
BayernLB executes orders to buy or sell financial instruments (securities and other financial instruments) in accordance with the following principles.
1. Scope of application
These principles describe the general procedure used by BayernLB for retail customers and professional customers within the meaning of the German Securities Trading Act (WpHG – Wertpapierhandelsgesetz).
If exeptional market situations or market/system disruptions arise, such as the failure of individual or multiple trading venues, BayernLB may choose an execution that deviates from these principles while safeguarding the customer's interests.
2. Precedence of customer instructions
- An instruction by a customer always takes precedence. BayernLB will always comply with any instructions issued by the customer when executing a buy or sell order.
- When BayernLB executes an order in accordance with the customer’s express instructions, the obligation to achieve the best result is regarded as complied with for the order parameters covered by the instructions. In this case, the principles do not apply to those parameters.
- If the customer’s instructions only involve individual parameters (price, cost, etc.), the principles are deemed to be complied with for those particular parameters. Order parameters not included in the customer’s instructions are still subject to the execution principles.
- BayernLB cannot guarantee that the execution of the order will produce to the best result when a customer issues an instruction.
3. Best execution principles for customer orders
The best execution principles apply equally to retail and professional customers regardless of the type of financial instrument. Unless the customer instructs otherwise, BayernLB always conducts transactions for retail customers using the fixed-price model.
1 Fixed-price transactions
- Fixed-price transactions are directly contracted between BayernLB and a customer which are not conducted on a trading venue.
- Where buy or sell orders are executed as fixed-price transactions, BayernLB shall ensure that they are executed at market conditions. If BayernLB is the issuer of the financial instruments, customers’ buy and sell orders for these instruments are generally executed as fixed-price transactions. If the customer so desires, the order may be executed on a trading venue as long as the financial instrument is traded there.
- In principle, all classes of financial instruments can be traded outside of a trading venue. Executing these transactions involves additional risks. In particular, there is the risk of default by the counterparty between the time of payment and the delivery of the financial instrument.
2 Agency transactions
- When BayernLB acts as an agent, it buys or sells financial instruments from another market participant on a trading venue in its own name for the customer’s account (trade transaction).
- For the following classes of financial instruments BayernLB transmits order in order to obtain the best execution:
- Equities
- Exchange Traded Funds (ETF)
- Exchange Traded Derivates (ETD)
- The entities listed under point 5 can be considered as execution entities. This list corresponds to the status at the time the execution principles were drawn up. Any changes to the list will be published accordingly on the BayernLB website. The current list can be accessed online at www.bayernlb.de or directly from BayernLB on request.
- Execution entities are evaluated according to the costs, price and likelihood of execution charged for executing the order. The selection of the best entity for executing the order depends on the country and class of the financial instrument.
- In the case of the execution of orders in financial instruments of foreign issuers, the principles of order execution of the respective selected execution entity apply.
- In cases where orders are executed for financial instruments issued by domestic is-suers, BayernLB’s order execution policy applies. BayernLB issues instructions to ensure that the execution by the selected execution entity complies with BayernLB’s order execution policy. Customer instructions always take precedence when forwarding orders.
- The best possible execution venue is determined under the assumption that the standard settlement for each security applies. If the assets are held in a depository or custody type that is different from that of the execution venue, the customer will have to issue suitable instructions.
- In accordance with legal provisions, the issue and redemption of investment fund units are not subject to these execution principles. Issue and redemption is conducted through the custodian bank. Customers who want to place a buy or sell order on a regulated market (stock exchange) or multilateral trading facility must instruct BayernLB accordingly.
- Orders for profit participation certificates and warrants require an instruction from the customer. Orders for subscription rights and ancillary rights generally require an instruction form the customer as well. If the customer fails to issue an instruction, the automatic sale will take place in the best interest of the customer on the last day of trading in accordance with no. 15 of the Conditions for Securities Transactions.
3 Notice about special types of execution
(1) Request-for-Quote-trading for Exchange Traded Funds (ETF):
BayernLB executes orders on Request-for-Quote platforms when instructed to do so by the customer.
RFQ systems allow firm quotes to be obtained from up to eight counterparties before a transaction is conducted. In the first step, BayernLB selects a maximum of eight counterparties with which it has most often conducted transactions in the past relative to all orders.
BayernLB will comply with customers’ wishes for particular counterparties when the counterparties have gone through BayernLB’s know-your-customer process and have been set up for requests in the system.
From the eight quotes, BayernLB will select the one with the best price.
(2) Request-for-Quote-trading for Exchange Traded Derivatives (ETD):
Orders that are supposed to be executed not only on Xetra but also MTFs and alternative trading platforms are only executed by BayernLB when the customer instructs it to do so. In these cases, BayernLB forwards the entire order to Morgan Stanley for execution. Morgan Stanley’s principles of execution then apply.
BayernLB executes orders on Request-for-Quote platforms when instructed to do so by the customer.
This system allows firm quotes to be obtained from up to eight counterparties before a transaction is conducted. In the first step, BayernLB selects a maximum of eight counterparties with which it has most often conducted transactions in the past relative to all order.
BayernLB will comply with customers’ wishes for particular counterparties, when the couterparties can be selected and technically activated for BayernLB on the EUREX EN-Light platform.
From the eight quotes, BayernLB will select the one with the best price.
4. Consideration and weighting of factors in determining the best execution
1. Explanation of the factors in the selection of an execution venue
Pursuant to Section 82 para 2 of the German Securities Trading Act (WpHG), BayernLB is required to take into consideration all criteria relevant to achieving the best execution results when preparing its Best Execution Principles. The criteria include:
Price
The price of a financial instrument depends fundamentally on supply and demand as well as the price determination mechanisms of the execution venue anchored in the regulatory framework. The comparison of price quality between execution venues is based on executed trades.
Costs
Costs consist of two basic components: third-party and own costs. In the first step in determining the best execution venue for customer orders, only third-party costs are considered in accordance with section 33a sub-section 3 of WpHG. Third-party costs incurred arise from the transaction costs (e.g. brokerage, transaction charges) and settlement costs (e.g. clearing fees, delivery fees) payable. In the event that multiple execution venues are shown to be equal, own fees and commission shall be taken into account.
Speed of execution
This refers to the period of time between the presence of an executable order at the execution venue and the execution confirmation by the execution venue.
Likelihood of execution
This describes the probability with which an executable order is executed at the execution location.
Certainty of settlement
Certainty of settlement covers all factors that maximise investor protection:
- Organisation of the stock exchange under public law and monitoring by the respective stock exchange supervisory authority as well as the Market Supervision Office and the Disciplinary Committee as an independent stock exchange body.
- Information services provided by the respective execution venue.
- Mistrade rules laid down by the respective execution venue.
- Execution guarantees (e.g. best-price principle) within the rules of the execution venue.
- Operational risks regarding delivery.
2 Weighting of factors considered in determining the best execution venue
The criteria are weighted according to the type and size of the order, the customer’s circumstances, the order, the financial instrument and the execution venue.
Unless the customer instructs otherwise, BayernLB always conducts transactions for retail customers using the fixed-price model.
For professional customers, BayernLB gives priority to costs, price and likelihood of execution when determing the best possible execution venue. If more than one execution venue offers the best execution in terms of costs, price and likelihood of execution, then speed of execution and settlement security are evaluated next.
If BayernLB transmits orders, this applies accordingly to the selection of the best possible entity to transmit orders to.
When evaluating which entity to transmit an order to, the costs that the entity charges the customer by class of financial instrument and country of execution are analysed. The costs are based on individual agreements with each entity.
If several execution venues or entities to transmit orders to still offer the best execution, then BayernLB will select one at its discretion.
5. List of execution venues and entities to which orders are transmitted
BayernLB distuinguishes execution venues and entities to transmit orders to by class of financial instrument as well as domestic and foreign. The following table summarises the execution venues and entities that are generally eligible from BayernLB’s point of view.
Financial instrument | Region | Execution venues | Order execution | Order transmission |
---|---|---|---|---|
Equities | Germany | Xetra | X | |
other venues (MTF) | X | |||
Germany, Abroad | Domestic regional exchange | X | ||
Abroad | Various trading venues | X | ||
ETF | Germany | Xetra | X | |
RFQ platforms (Bloomberg RFQE) | X | |||
Abroad | Various trading venues | X | ||
RFQ platforms (Bloomberg RFQE) | X | |||
ETD | Germany | EUREX | X | |
RFQ platforms (EUREX EN-Light) | X | |||
Abroad | Various trading venues | X |
1. Overview of multilateral trading facilities (MTF)
When execution orders for domestic stock exchanges, BayernLB takes the following multilateral trading system (MTFs) into account within the framework of its execution principles.
Multilateral trading facilities (MTF) | Website |
---|---|
AQUIS EXCHANGE | www.aquis.eu |
CBOE DXE Orderbook | www.markets.cboe.com |
TURQUOISE EXCHANGE | www.lseg.com |
2. Overview of Domestic regional exchange
BayernLB forwards orders directly th the forwarding institution Joh. Berenberg, Gossler & Co. KG to execute the order.
Domestic regional exchange | Website |
---|---|
Berlin-Bremen stock exchange | www.boerse-berlin.de |
Dusseldorf stock exchange | www.boerse-duesseldorf.de |
Frankfurt stock exchange | www.boerse-frankfurt.de |
Hamburg-Hannover stock exchange | www.boersenag.de |
Munich stock exchange | www.boerse-muenchen.de |
Stuttgart stock exchange | www.boerse-stuttgart.de |
3. Overview of entities to which orders are transmitted
BayernLB uses the following entities to transmit execute orders.
Entity to which orders are transmitted | Website | Financial instrument |
---|---|---|
Joh. Berenberg, Gossler & Co KG | www.berenberg.de | Equities on domestic regional exchange |
Baader Bank | www.baaderbank.de | Equities and ETFs |
Jefferies GmbH | www.jefferies.com | Equities and ETFs |
Citigroup Global Markets Europe AG | www.citigroup.com | Equities and ETFs |
Credit Suisse Securities S.V.,S.A. | www.credit-suisse.com | Equities and ETFs |
Morgan Stanley Europe SSE | www.morganstanley.com | Equities and ETFs |
UBS Europe SE | www.ubs.com | Equities, ETFs and ETDs |
6. Review of the principles
BayernLB reviews its execution venues and entities for transmitted orders selected in accordance with these principles at least once a year. In addition, the policy is reviewed whenever a major change occurs that leads to the conclusion that executing orders on the execution venues covered by the Execution Principles can no longer be assumed to be always in the customer’s best interests. BayernLB regularly reviews the effectiveness of its Execution Principles and revises them as required.