FCA Handbook - COBS 11.3 Client order handling

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COBS 11.3 Client order handling

General principles

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

(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) of MiFID]

(3)
A UCITS management company 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 it manages.

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

(1)
[deleted]
(2)
[deleted]
(3)
COBS 11.3.4AR does not apply to a UCITS management company.

Carrying out client orders

A firm must, when carrying out client orders:

(1) ensure that orders executed on behalf of clients are promptly and accurately recorded and allocated;
(2) 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;
(3) inform a retail client about any material difficulty relevant to the proper carrying out of orders promptly upon becoming aware of the difficulty.

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.

Where a management company executes the order itself in the course of providing collective portfolio management services, 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 scheme.

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

Settlement of executed orders

Where a firm is responsible for overseeing or arranging the settlement of an executed order, it must take all reasonable steps to ensure that any client financial instruments or client money received in settlement of that executed order are promptly and correctly delivered to the account of the appropriate client.

Use of information relating to pending client orders

A firm must not misuse information relating to pending client orders, and must take all reasonable steps to prevent the misuse of such information by any of its relevant persons.

Without prejudice to the Market Abuse Regulation, for the purposes of the provision on the misuse of information (see COBS 11.3.5AR), 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.

Aggregation and allocation of orders

A firm must not carry out a client order or a transaction for own account in aggregation with another client order unless the following conditions are met:

(1) it is unlikely that the aggregation of orders and transactions will work overall to the disadvantage of any client whose orders are to be aggregated;
(2) 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; and
(3) the firm has established and effectively implemented an order allocation policy which provides 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.

A management company must ensure that the order allocation policy referred to COBS 11.3.7AR(3) is in sufficiently precise terms.

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

Partial execution of aggregated client orders

Where a firm aggregates an order with one or more other client orders and the aggregated order is partially executed, it must allocate the related trades in accordance with its order allocation policy.

Aggregation and allocation of transactions for own account

A firm which has aggregated transactions for own account with one or more client orders must not allocate the related trades in a way that is detrimental to a client.

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

(2) Where a firm aggregates a client order with a transaction for own account and the aggregated order is partially executed, it must allocate the related trades to the client in priority to the firm. Where the 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 COBS 11.3.7AR(3).

As part of the order allocation policy referred to in COBS 11.3.7AR(3), a firm must 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.

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.

In this section, carrying out client orders includes:

(1)
the execution of orders on behalf of clients;
(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;
(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

(1)
This section applies to a UCITS management company as a result of COBS 18.5B.2R.
(2)
[deleted]

(3)

Some of the provisions in this chapter transpose provisions of the UCITS implementing Directive, as set out in the table below:

COBS 11.3 provision	UCITS implementing Directive transposition
COBS 11.3.2AR	article 27(1) second paragraph
COBS 11.3.5AR	article 27(2)
COBS 11.3.7AR, as modified by COBS 11.3.7BR	article 28(1)
COBS 11.3.8AR	article 28(2)
COBS 11.3.9AR	article 28(3)
COBS 11.3.10AR	article 28(4)

A firm subject to COBS 11.3.2AR to COBS 11.3.13G must retain the records it is required to make under those rules.