COBS 19.8 Disclosure of transaction costs and administration charges in connection with workplace pension schemes

In this section:

1. (1)

   [deleted]

2. (2)

   ‘anti-dilution mechanism’ is any method used to the benefit of an investment to offset the impact of inflows or outflows from that investment, whether by way of:

   1. (a)

      a levy; or

   2. (b)

      any adjustment enabling further investment into, or redemption of investments from, the investment.

3. (3)

   ‘arrangement’, in connection with a relevant scheme, is any investment available to scheme members for the investment of their pension contributions.

4. (4)

   [deleted]

This section applies to:

1. (1)

   an operator of a relevant scheme; and

2. (2)

   a firm which holds information needed for the calculation of transaction costs or administration charges in the course of providing services in connection with:

   1. (a)

      a relevant scheme;

   2. (b)

      an arrangement; or

   3. (c)

      an investment in which an arrangement is directly or indirectly invested.

A firm must respond in a reasonable time and in a reasonably acceptable format to a request for information relating to transaction costs and administration charges relating to a particular arrangement (or any investment in which the arrangement is directly or indirectly invested) over a period of time from or on behalf of:

1. (1)

   an operator, trustee or manager of a relevant scheme; or

2. (2)

   another firm seeking to comply with its obligations under this section.

In responding to the request referred to in COBS 19.8.4R, the firm must:

1. (1)

   calculate the transaction costs incurred in relation to the arrangement or investment to which the request relates (including transaction costs incurred in any investment in which the arrangement or investment is directly or indirectly invested) in accordance with this section;

2. (2)

   disclose the results of the aggregation of those transaction costs to the requesting person, along with a breakdown of the identifiable elements of those costs;

3. (3)

   disclose the administration charges incurred in that arrangement or any investment to which the request relates (including administration charges incurred in any investment in which the arrangement or investment is directly or indirectly invested); and

4. (4)

   provide other relevant information which would or may assist in making comparisons between the costs or charges in (1) to (3) and the equivalent costs or charges of other pension schemes where available.

If a firm does not have the information necessary to comply with COBS 19.8.4R and COBS 19.8.5R, then it must:

1. (1)

   take reasonable steps to obtain that information; or

2. (2)

   where, despite having taken such reasonable steps, it remains unable to comply with COBS 19.8.4R and COBS 19.8.5R, provide a written explanation to the requesting party explaining why, including the percentage of investments in the arrangement (or investment in which the arrangement is directly or indirectly invested) for which information cannot be obtained, and indicating the categories of investments involved.

A firm must calculate the transaction cost of buying or selling an investment as the difference between arrival price (AP) and execution price (EP) of that investment, multiplied by the number of units of, or in, the investment transacted, as follows:

1. (1)

   AP and EP are determined in accordance with this section;

2. (2)

   where an investment is purchased:

   transaction cost = (EP-AP) x (units); and

3. (3)

   where an investment is sold:

   transaction cost = (AP-EP) x (units).

A firm must determine the arrival price as follows:

1. (1)

   for a transferable security, or other investment which there are frequent opportunities to dispose of, redeem, or otherwise realise at a price publicly available to market participants that is either a market price or a price made available or validated by valuation systems independent of the issuer:

   1. (a)

      the market mid-price at the time the order was transmitted to another person for execution or was executed, whichever is earlier

   2. (b)

      if no such price is available, then the last available mid-price on the day the order was executed, or, if this is not available, the closing mid-price on the day before; or

   3. (c)

      if the order to transact was executed on a day other than the day it was transmitted to another person for execution, the market opening mid-price on the day of execution, or, if this is not available, the closing mid-price the day before; or

   4. (d)

      if the order was executed during an auction, the most recently available mid-price of the asset prior to the auction; or

   5. (e)

      if an order is transmitted to another person for execution outside trading hours, the subsequent market opening mid-price.

2. (2)

   for an investment fund or other vehicle priced on a periodic basis:

   1. (a)

      for a dual-priced vehicle, the fair value mid-price of the vehicle at the pricing point when the transaction took place; or

   2. (b)

      for a single-priced vehicle, the fair value price of the vehicle at the pricing point when the transaction took place, prior to any dilution adjustment.

3. (3)

   for physical (in other words, real or tangible) assets, the price paid for that physical asset, excluding all charges, commissions, taxes and other payments associated with the transaction.

4. (4)

   for any other investment which does not fall into (1), (2) or (3):

   1. (a)

      the most recent independent valuation prior to the order to transact being executed, or, if earlier, transmitted to another person for execution, adjusted appropriately for market movements using an appropriate benchmark index; or

   2. (b)

      if no such valuation is available, then an estimate based on a reasonable appraisal of the fair value of the asset prior to the order to transact being executed.

Where an order is split into multiple orders (‘child orders’) in the same investment and transmitted on the same day, the arrival price of the first child order must be used as the arrival price of all subsequent child orders on that day.

For orders in initial public offerings, placings and other issuance of securities, the transaction price must be used as the arrival price.

When determining the arrival price for a derivative where there is no publicly available price, a firm must determine the fair value price of the derivative.

A firm must, in relation to a transaction involving foreign exchange, determine the arrival price using a reasonable estimate of the consolidated price rather than the price available from a single counterparty or foreign exchange platform, even if an agreement exists to undertake all foreign exchange transactions with a single counterparty.

Where a bond transaction is executed on an over the counter basis after bid prices and offer prices have been obtained from more than one potential counterparty, the arrival price must be taken to be:

1. (1)

   if the best bid price is below the best offer price, the mid-point between the best bid price and the best offer price;

2. (2)

   if the best bid price is higher than the best offer price, the best bid price in the case of a sale or the best offer price in the case of a purchase; or

3. (3)

   if the best bid price is equal to the best offer price, that price.

Where a bond transaction is executed on an over the counter basis after either a bid price or an offer price has been obtained, the arrival price must be estimated as follows:

1. (1)

   by reference to the bid/offer spread on transactions in bonds with similar characteristics to the bond in question; or

2. (2)

   by reference to a composite of indicative bid and offer quotes; or

3. (3)

   by any other reasonable method.

A firm must determine the execution price as the price at which a transaction is executed including all charges, commissions, taxes and other payments associated with the transaction, directly or indirectly, where those payments are made from the assets of the arrangement or of any investment in which the arrangement is directly or indirectly invested.

A firm must calculate the transaction cost of a loan transaction as the difference between the charge paid by the ultimate borrower in relation to that loan and the amount received by the arrangement (or underlying investment).

To determine the transaction cost of a borrowing transaction, a firm must use the amount paid for the loan.

The firm must aggregate and disclose, separately, the following transaction costs for each arrangement or investment and period to which the request relates:

1. (1)

   the sum of the transaction costs for buy and sell transactions factoring in anti-dilution mechanisms (see COBS 19.8.21R); and

2. (2)

   the sum of the transaction costs for lending and borrowing transactions.

Subject to COBS 19.8.22R, a firm using an anti-dilution mechanism in connection with an arrangement or investment may factor this into the aggregate transaction costs calculation as follows:

1. (1)

   where a levy is used, the monetary value of that levy may be subtracted from the aggregate transaction costs; and

2. (2)

   where an adjustment is made by enabling further investment into or redemption from an investment, the value of the benefit accruing to the investment may be subtracted from the aggregate transaction costs.

When aggregating transaction costs, a firm must not subtract any portion of a benefit derived from an anti-dilution mechanism that would reduce the aggregate transaction cost below zero.