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Further Information
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Conflicts of Interest Summary
We provide here a summary of the policy we maintain in order to manage conflicts of interest in respect of the duties we owe to our clients. This applies from 15 February 2021.
GENERAL
A conflict of interest can arise between North of South Capital LLP and Pacific Capital Partners and dVam LLP Group companies and associates, the directors and staff of such companies (‘us’) and you as a client, or between your interests and those of another client of ours. Conflicts can also arise as a result of inducements from or to third parties. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all appropriate steps to prevent conflicts of interest from constituting or giving rise to a risk of damage to the interests of our clients.
CIRCUMSTANCES THAT CAN GIVE RISE TO A CONFLICT
A conflict of interest may arise where a relevant person (for example, an employee), or a person directly or indirectly linked by control to North of South Capital LLP:
- is likely to make a financial gain, or avoid a financial loss, at the expense of the client;
- has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of the client, which is distinct from the client’s interest in that outcome;
- has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client; • carries on the same business as the client; or
- receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monies, goods or services, other than the standard commission or fee for that service. For a conflict to arise a linked person must benefit and there must be a possible disadvantage to a client.
OUR POLICY
We aim to keep a record of the kinds of activity we carry on in which a conflict could arise or has arisen, and, in doing so we take account of the activities of other members of our group of companies. We also maintain procedures to prevent or manage actual or potential conflicts. This includes procedures to maintain appropriate independence between members of our staff who are involved in different activities, for example, through the operation of information barriers, physical separation of staff, the segregation of duties and responsibilities and maintenance of a policy of independence which requires our staff, when providing services to a client, to act in the best interests of the client and to disregard any conflicts of interest; and, in some circumstances declining to act for a client or potential client.
Engagement Policy
- Under obligations arising from the revised Shareholder Rights Directive (EU 2017/828) (“SRD II”), a firm which trades shares on regulated and comparable markets, is required to either develop and publicly disclose an engagement policy as prescribed in COBS 2.2B.6R or disclose a clear and reasoned explanation of why it has chosen not to do
- North of South has elected to disclose its engagement policy as set out below. Further, North of South is also required to further disclose on an annual basis how the engagement policy has been implemented in a way that meets the requirements in COBS 2B.7R. North of South publishes its annual disclosure separately on its website.
- An Asset Manager for the purposes of this policy relates to investment firms that provide portfolio management services to investors; alternative investment fund managers; and/or Undertaking for Collective Investment in Transferable Securities (UCITS) management companies.
- The following Engagement Policy applies to North of South Capital LLP because whilst the Firm invests in the emerging markets in Asia, Latin America, Africa, the Middle East and Russia some of the equities of some companies are dual listed both in the UK and in the EU and are therefore listed on a recognised trading venue within the EEA.
- North of South Capital LLP is required to disclose this engagement policy which complies with the requirements set out in the FCA’s Conduct of Business Sourcebook.
- It is also required to publicly disclose on an annual basis how that engagement policy has been implemented in a way that meets the requirements (including disclosure of certain of voting activities in respect of shares in investee companies) or to publish a clear and reasoned explanation of why the Firm has chosen not to comply with the requirements.
- North of South Capital LLP must describe how it:
- integrates shareholder engagement in its investment strategies;
- monitors investee companies on relevant matters (e.g. strategy, financial and non-financial performance and risk, capital structure, social and environmental impact and corporate governance);
- conducts dialogues with investee companies;
- exercises voting and any other shareholder rights;
- cooperates with other shareholders;
- communicates with relevant stakeholders of investee companies;
- manages actual and potential conflicts of interests in relation to North of South Capital LLP’s engagement.
Integrating shareholder engagement in our investment strategies (COBS 2.2B.6 R (1))
- Research and analysis by our investment managers includes evaluation of performance on strategy, financials, risk, material environmental social and governance (‘ESG’) factors.
- Engagement with company management, boards, subject specialists as well as other shareholders and stakeholders is a key input into this process and investment strategy.
- Voting and engagement activities can be used by the Firm to provide a forward-looking view of the financial and non-financial performance of a company.
Monitoring investee companies on relevant matters (COBS 2.2B.6 R (2))
- North of South Capital LLP may actively monitor investee companies. Areas of focus may include issues with regard to company strategy, ongoing performance and operational ESG factors. The Firm may have discussions with company officials and representatives where appropriate.
- The Firm’s monitoring is also supported by the following:
- North of South Capital LLP’s proprietary research; and
- Data provider subscriptions
Conducts dialogues with investee companies (COBS 2.2B.6 R (3))
- The Firm will take a case-by-case approach in its decision to engage with the management of an investee company. Normal methods through which dialogue shall be exercised include:
- regular meetings, visits, and telephone calls during which North of South Capital LLP will discuss and pose questions on operational, strategic and other management issues and, where appropriate, the Firm shall offer their own opinions and comments, based on their fiduciary duty to its clients; and
- proxy voting; where North of South Capital LLP’s clients delegate the responsibility to vote proxies, the Firm as a fiduciary is compelled to vote proxies in the best interests of its clients. See North of South Capital LLP’s Proxy Voting Policy.
- Any material proposals or suggestions will be discussed and agreed with portfolio managers within the Firm before they are put to investee companies.
Exercising voting and any other shareholder rights (COBS 2.2B.6 R (4))
- For North of South Capital LLP, voting is an effective tool to escalate issues and express particular concerns and/or opinions the Firm may have. North of South Capital LLP aims to ensure effective and efficient voting processes and controls by focusing on investments that are material to the Firm.
Cooperating with other shareholders (COBS 2.2B.6 R (5))
- North of South Capital LLP takes into consideration the following when deciding whether to participate in collective engagement:
- the engagement objectives of the collective group are consistent with North of South Capital LLP’s objectives;
- engaging as part of a group will be more successful than engaging individually; and
- engaging as a group could be interpreted as having “acted in concert” with another financial institution. If North of South Capital LLP’s Legal and/or Compliance believe that this may be the case, the Firm will not participate.
Communicating with relevant stakeholders of investee companies (COBS 2.2B.6 R (6))
- North of South Capital LLP’s investment professionals regularly engage with companies seeking to improve shareholder value, specifically the value of clients’ investments. Engagement activities in some instances are conducted on a one-to- one basis with company management or members of the board of directors.
Managing actual and potential conflicts of interests in relation to North of South Capital LLP’s engagement (COBS 2.2B.6 R (7))
- North of South Capital LLP as an investment firm is aware that conflicts of interest may arise when assessing whether and how to engage with companies. The Firm has a Conflict of Interest Policy in place to help define limitations, the need for robust internal processes and procedures to mitigate the risk of conflicts, as well as the disclosure being the last resort for instances in which potential or actual conflicts are unable to be effectively managed internally. Said policy shall apply to the Firm’s engagement and any proxy voting activity.
- The Firm shall disclose a general description of voting behaviour, an explanation of the most significant votes and report on the use of the services of proxy advisors.
- The disclosure must include details of how votes have been cast, unless they are insignificant due to the subject matter of the vote or to the size of the holding in the company.
- This shall be made freely available on North of South Capital LLP’s website and updated annually, unless there has been any material change.
Best Execution Policy
Under the EU Markets in Financial Instruments Directive (MiFID) and COBS 11.2A of the Financial Conduct Authority (“FCA”) Handbook, North of South Capital LLP (“North of South”) must take sufficient steps to obtain the best possible result (or Best Execution) on behalf of its clients taking into account the execution factors.
These rules require a firm to put in place an order execution policy which sets out how it will obtain Best Execution and the order handling for its clients and will provide appropriate information to its clients about its order execution policy.
This Order Execution Policy applies to Professional Clients dealing in Financial Instruments (as set out in Annex 1) where North of South executes orders on a client’s behalf.
The duty of Best Execution applies when executing orders on behalf of a client. North of South will be executing orders on a client’s behalf where the client legitimately relies on North of South to protect its interests in relation to the pricing or other aspects of the transaction that may be affected by how North of South executes the order. For example, this will be the case when North of South executes an order by dealing as agent.
This means that North of South will aim to provide Best Execution subject to, and taking into account, the nature of client orders, the prices available to North of South in the market, the nature of the market in question and a reasonable assessment of the execution factors (see below).
North of South’s intention, so far as possible, is to exercise consistent standards and operate the same processes across all markets, clients and financial instruments in which North of South operates.
North of South will only deal on behalf of Professional Clients as defined in MiFID and by the Financial Conduct Authority. Eligible Counterparties are not entitled to best execution as defined under the FCA/MiFID II requirements.
North of South will take into account the characteristics of the client n particular:
- the characteristics of the client order;
- the characteristics of the financial instruments that are the subject of that order;
- and the characteristics of the execution venues to which that order can be directed.
In line with the FCA rules North of South will NOT exempt particular products or activities from best execution requirements or permit clients to waive the application of best execution.
North of South will exercise its own discretion in determining the factors that North of South needs to take into account for the purpose of providing clients with the best possible result.
These execution factors in the markets in which North of South operates will include, but are not restricted to:
- Price (normally considered the most important factor)
- Cost, including commission and charges
- Speed of execution
- Likelihood of execution and settlement
- Size and nature of the order (this will be dependent on the ability of venues or brokers to manage the execution and the speed and efficiency of the settlement process, post execution);
- Liquidity for the relevant instrument; and
- Any other considerations relevant of the execution of the order
Price will ordinarily merit a high relative importance in obtaining the best possible result. However, in some circumstances North of South may appropriately determine that other execution factors are more important than price in obtaining the best possible execution result. Given that North of South invests in emerging markets the non-price execution factors can be given greater weight than would be usual when trading in developed markets.
Cost is one of the execution factors and North of South have duty to control the costs incurred on behalf of their clients as it is integral to best execution for Professional Clients.
There are three broad categories of cost, all of which are relevant to Professional Clients:
- implicit cost control, meaning minimising the market impact of order execution;
- explicit external costs (e.g. exchange or clearing fees);
- explicit internal costs, which represent the firm’s own remuneration through its commission or spread.
For Professional Clients cost is simply one of the execution factors.
Implicit costs arise from the execution of all client orders. Firms should measure implicit costs as part of their arrangements to monitor execution performance and review the execution quality of entities or execution venues.
Implicit costs result from how a trade is executed (for example, immediately or worked over a period of time, in a block, aggregated with other trades, or as child orders sent to multiple different execution venues). A trade may appear more expensive in terms of explicit costs but may be less expensive when implicit costs are considered. For example, a firm that works a large order over time, preserving the client’s confidentiality and minimising market impact, may achieve the lowest total costs (and the best net price). Unlike explicit costs, the impact of implicit costs can only be precisely assessed after a trade is completed and even then, implicit costs are difficult to quantify. As a result, ahead of a trade, a judgement will be made by North of South about the likely implicit costs of an execution strategy and North of South will take all reasonable steps to manage them.
North of South will not discriminate unfairly between execution venues in the way in which they structure or charge commissions. In other words, North of South will not charge a different commission or spread to clients for execution on different execution venues which is not related identifiable differences in the explicit costs incurred on behalf of clients
This include commissions, fees, taxes, exchange fees, clearing and settlement costs, or any other costs passed on to the client by intermediaries participating in the transaction.
This represents North of South’s own remuneration (including a commission or spread) for completing a transaction. These internal commissions and costs for executing an order must be taken into account in assessing where to execute the order, where there is more than one competing venue available. Thereafter, when judging whether best execution has been given on an individual transaction, firms can omit their own fees and charges from the assessment.
North of South will determine the relative importance of the execution factors by using its commercial judgment and experience in light of market information available and taking into account the execution criteria.
The execution criteria that will be taken into account are the characteristics of:
- the client categorisation;
- the characteristics of the order;
- the financial instruments that are the subject of that order; and
- the execution venues to which that order can be directed.
Where a client order is received without a specific instruction, North of South will exercise discretion in determining the factors to be considered in order to provide the best possible result for the client.
In meeting its obligation to take all reasonable steps to obtain on a consistent basis the best possible result for the execution of client orders, North of South may use one or more of the following venue types when executing an order on behalf of its clients:
- Regulated Markets;
- Multilateral Trading Facilities;
- Systematic Internalisers;
- Third party investment firms acting as Market Makers or other liquidity providers;
and/or
- Non-EU entities performing similar functions.
North of South believes that these venues or sources of liquidity enable it to obtain on a consistent basis, the best possible result for orders North of South executes on behalf of its clients. North of South will assess which venues in the attached list (see Appendix 2) are likely to provide the best possible result for its clients on a transaction-by transaction basis.
6.2 Order Execution Timescales
Throughout the execution of your orders, we cannot be held accountable for any third-party failures
We do not owe you any fiduciary responsibilities over and above or regulatory obligation to provide you with Best Execution or as otherwise specifically agreed with us.
Regulations requires us to take sufficient steps to provide you with the best possible result on a consistent basis. Whilst we will robustly monitor the achievement of Best Execution, we cannot guarantee that we will achieve it for every order where we act on your behalf. Sale and buy orders with the same settlement date will be placed on the same day where possible.
It should be noted that if there is a delay in us receiving proceeds of the sale order, any further delay may be caused to the buy order.
We reserve the right to cancel an order without notice where we believe this is sufficiently justified. This may include, but is not limited to, circumstances where we are requested to do so by our counterparty or the relevant exchange, or where we believe there may be potential market abuse.
We will not be liable for any loss you incur because of the cancellation of an order in these circumstances.
North of South informs its brokers that it expects them to provide best execution regardless of market practices in the relevant markets or of the capacity in which the broker transacts.
If and when North of South trades instruments in instruments where brokers are acting as broker rather than as principal and the concept of best execution exists in the relevant market, North of South will seek to impose a best execution obligation on the brokers to whom orders have been placed.
Monitoring and review will take the form of semi-annual commission rate review and review of each execution against price recaps to determine if best execution has been obtained. Where either a broker is acting as principal or the concept of best execution does not apply in the relevant market North of South will make an ex-ante assessment of which broker it believes can deliver best execution and on an ex-post basis will review of each execution against price recaps to determine if best execution has been obtained.
North of South has established a Best Execution Committee which meets on a semi-annual basis to assess whether the execution venues listed above continue to provide the best possible result for the Firm’s clients. As part of this review, the Firm takes into consideration the annually published execution data made available by trading venue operators and other investment firms. The Best Execution Committee approves all execution venues (and their terms of engagement). Execution venues may only be added to the list with the consent of the Best Execution Committee and they will consider factors including but not limited to: credit and counterparty risk; the level of service; and markets covered during their due diligence process and ongoing review. Where only one execution venue is available to North of South for a particular class of financial instrument, the Best Execution Committee will additionally consider whether the execution venue enables the Firm to consistently achieve the best results for its clients and whether any other suitable venues exist.
10. Policy Review & Disclosures
North of South continually (and formally at least annually) reviews the effectiveness of this policy and its execution arrangements to identify and, where appropriate, incorporates any changes to enhance the quality of execution obtained.
North of South provides all its clients with a copy of its Best Execution Policy (otherwise known as an Order Execution Policy) and confirms their consent in writing (or by email) to it prior to the provision of services.
North of South will notify its clients of any material changes to this policy. A change is material where it would affect the best execution parameters and/or its disclosure is necessary to enable clients to make a properly informed decision about whether to continue utilising the services of the Firm.
11. Publication of top execution venues and summary analysis of execution quality
On an annual basis, North of South summarises and makes public, for each class of financial instrument, the top five entities in terms of trading volumes where the Firm transmitted or placed orders for execution in the preceding year.
In addition to the above, North of South publishes for each class of financial instrument, a summary of the analysis conducted and conclusions drawn from the monitoring of the execution venues utilised. Specifics of what the analysis is to cover include:
- Relative importance the Firm gave to the execution factors when assessing quality of execution;
- Description of any close links, conflicts, common ownerships with respect to any execution venues used;
- Description of any specific arrangements with execution venues regarding payments made/received, discounts, rebates or non-monetary benefits;
- Explanation of factors that led to a change in the list of execution venues used by the Firm;
- Explanation of how order execution differs according to client categorisation; and
- An explanation of how the Firm has used any data or tools relating to quality of execution published by execution venues.
North of South publishes this information on the Firm’s website in a machine-readable electronic format available on our website at www.northofsouth.com
Appendix 1: Financial Instruments as defined in Annex 1, Section C, of MiFID
- Transferable securities;
- Money-market instruments;
- Units in collective investment undertakings;
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash;
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event);
- Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market and/or an MTF;
- Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in 6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls;
- Derivative instruments for the transfer of credit risk;
- Financial contracts for differences; and
- Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls.
Appendix 2: Order Execution Venues
The following list is not exhaustive and may change from time to time as venues are accessed differently, or markets or normal process change. It is open to North of South Capital to use venues not referenced on the list below where we believe it to be necessary to obtain Best Execution:
Abu Dhabi Securities Exchange; Athens Stock Exchange; Australian Stock Exchange; BM&F BOVESPA; Bombay Stock Exchange; Bolsa de Valores de Columbia; Budapest Stock Exchange; Bursa Malaysia Colombo Stock Exchange; Egyptian Stock Exchange; Frankfurt Stock Exchange; GreTai Securities Market; Harare Stock Exchange; Hong Kong Stock Exchange; Indonesia Stock Exchange; Irish Stock Exchange; Istanbul Stock Exchange; JSE Securities Exchange; Korea Exchange; Lima Stock Exchange; London Stock Exchange; Madrid Stock Exchange; Mexican Stock Exchange; NASDAQ Stock Market Exchange; National Stock Exchange of India; New York Stock Exchange; Nigerian Stock Exchange; NYSE ARCA; NYSE Amex Equities; Philippines Stock Exchange; Prague Stock Exchange; Russian Trading System Stock Exchange; San Jose Stock Exchange; Santiago Stock Exchange; Shanghai Stock Exchange; Shenzhen Stock Exchange; Singapore Stock Exchange; Stock Exchange of Thailand; Taiwan Stock Exchange; Tel-Aviv Stock Exchange; Tokyo Stock Exchange; Toronto Stock Exchange; TSX Venture Exchange; Vienna Stock Exchange; Warsaw Stock Exchange