General Principles for Executing and Transmitting Orders

Best Execution Policy (Last updated: February 2018)

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.

Scope of application

These execution and transmission 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).

Precedence of customer instructions

  1. 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.
  2. 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.
  3. 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.
  4. BayernLB cannot guarantee that the execution of the order will produce to the best result when a customer issues an instruction.

Best execution principles for securities and other financial instruments

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

  1. Fixed-price transactions are directly contracted between BayernLB and a customer which are not conducted on a trading venue.
  2. 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.
  3. 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

  1. 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.
  2. Orders for financial instruments from German issuers (“domestic financial instruments”) that are traded on a regulated market (stock exchange) or a multilateral trading facility, within the meaning of section 2 para 8 no. 8 of the German Securities Trading Act (MTF), in Germany shall be executed on a German trading venue.
  3. Financial instruments from non-German issuers (“foreign financial instruments”) that are traded on a regulated market (stock exchange) or a multilateral trading facility in Germany shall also be executed on a German trading venue.
  4. If a financial instrument is not traded on a German trading venue, the order will be transmitted to another entity for execution.
  5. For professional customers, the quality of execution is measured primarily in terms of price and speed of execution. If this does not lead to a clear result, then probability of execution and settlement security will be evaluated. If the same quality of execution can be obtained on more than one trading venue, BayernLB shall select one at its discretion in accordance with selected criteria. The criteria for selecting the best execution venue can be seen in the appendix to these principles.
  6. 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.
  7. 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.
  8. 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 five counterparties before a transaction is conducted. In the first step, BayernLB selects a maximum of five 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 five quotes, BayernLB will select the one with the best price.

(2) MTFs and alternative trading venues:

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.

Best execution principles for transmitted orders

For professional customers, BayernLB transmits orders for the following classes of financial instruments in order to obtain the best execution.

  • Equities
  • Exchange Traded Funds (ETF)
  • Exchange Traded Derivatives (ETD)

Execution entities are:

Equities: UBS Limited London, Morgan Stanley London, Credit Suisse Securities, Citigroup London, Merrill Lynch International (only used for certain regions)

ETF: UBS Limited London, Morgan Stanley London, Credit Suisse Securities, Citigroup London, Merrill Lynch International (only used for certain regions) and other brokers via RFQ platforms

ETD: UBS Limited London

Execution entities are evaluated on the basis of the costs 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. Orders that are transmitted for execution are subject to the execution policy of the entity that executes the order.

Review of the principles

BayernLB reviews its execution venues and entities for transmitted orders selected in accordance with these execution and transmitting 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 and Transmittion Principles and revises them as required.

Further information

For appendix and details to the General Principles please download the PDF version.