To ensure LPS Capital LLC (“LPSC”) best execution obligations and order handling practices are transparent to our customers we are providing you with information regarding the Firm’s equity policies when handling certain types of orders in equity securities for institutional clients.
LPSC seeks to execute its customers’ orders at the most favorable terms reasonably available under the prevailing market conditions. In seeking the best quality of execution of your order, the Firm will take into account a number of factors based on the terms and conditions governing your order and all applicable regulatory requirements.
Not Held Orders
A “not held” order is one in which the customer has granted the Firm price and time discretion. Orders accepted on behalf of our institutional clients will be handled on a “not held” basis unless affirmatively stated by you or your representative upon submission that LPSC is to handle your order according to specific terms and conditions, i.e., “Held” order (see below). A “not held” designation provides the Firm greater flexibility in the manner in which that order is executed by allowing LPSC to take into consideration several factors, including, the size of the order relative to the liquidity in the market, the relative urgency for execution, special instructions relating to representing a certain percentage of volume in the market, benchmarking agency executions to the market volume weighted average price, and requests for capital commitment. Furthermore, all or part of a “not held” order may not be displayed in a public quotation system. All of these factors will have an impact on how these types of orders are executed, and consequently some “not held” orders may be executed at prices that are inferior to prices that are less favorable than prices received by other customer orders.
A ”held” order is one in which you instruct the Firm to immediately submit for execution at the best available market price, subject to size and limit price constraints. “Held” orders prohibit the Firm from having discretion in handling your order. “Held” orders obligate the Firm to execute your market order immediately at the then prevailing market price or your limit order at your limit price (or better).
FINRA Rule 5320 – Prohibition Against Trading Ahead of Customer Orders
Rule 5320 generally prohibits a member firm that accepts and holds a customer order from trading for its own account at terms that would satisfy the customer order, unless the member immediately thereafter executes the customer order at the same or better price than it traded for its own account. While the rule applies broadly to all types of clients and order sizes, it provides the below listed exemptions that permit LPSC to trade for its own account ahead of customer orders. Please note that consistent with existing regulatory guidance, the Rule is not applicable to not-held orders.
FINRA Rule 5270 Front Running of Block Transactions
Rule 5270 prohibits LPSC and its affiliates from trading for its own accounts when the Firm has material, non-public information concerning an imminent customer block transaction. The Rule applies to any equity security, fixed income security, option, derivative, security-based swap or other financial instrument overlying a security that is the subject of an imminent block transaction. Rule 5270 does allow for certain permitted transactions. Among these permitted transactions, the Rule allows for member firms to trade principally for its own account for the purpose of fulfilling, or facilitating the execution of the customer block order. These may include hedging, block positioning, or engaging in transactions in related financial instruments (which include options or derivatives) that fulfill or facilitate your block transaction. LPSC when engaging in such hedging or positioning activity will make every effort to minimize any potential market impact and obtain the best possible prices for your orders.
Please contact your LPSC representative or the Compliance Department at Compliance@LPSCinc.com if you have any questions regarding the manner in which we handle your orders as described in this letter.