Best Execution and Order Placement Disclosure

1. Background

The purpose of this document is to explain BlackRock’s Execution and Order Placement Policy (‘the Policy’), as required under the MAS Notice on Execution of Customers’ Orders (SFA 04-N16). Under such rules, BlackRock is required to establish and implement Best Execution policies and procedures which cover all capital markets products and all capacities in which it is acting in, agent or principal. Based on such policies and procedures, BlackRock take all sufficient steps to obtain consistently over time (and not in relation to every single order) the best possible result when executing clients’ orders.

This Policy sets out how BlackRock complies with its obligation to act in the best interests of its clients when placing orders on behalf of its clients with other entities (such as brokers and dealers) for execution. The Policy applies when executing client orders directly with an execution venue and/or when placing client orders, or transmitting client orders to, another entity for them to execute (collectively referred to as ‘execution’ throughout this policy).

2. Scope

This document applies to BlackRock (Singapore) Limited (“BSL”), which is regulated by the Monetary Authority of Singapore (“MAS”), in its dealings with all classes of investors as defined under the Securities and Futures Act (Chapter 289).

3. BlackRock's Trade Execution Model

BlackRock operates a trade execution model that involves the centralisation of most trading to various specialised trading desks and the routing of orders typically to one of the specialised trading desks as part of the centralised trading platform. Maintaining a centralized execution model allows BlackRock to enhance its control framework by creating a separation of duties between trading and portfolio management. It also allows BlackRock to seek to optimize trade execution which is beneficial to BlackRock’s clients.

BlackRock’s centralized trading desks are separate from BlackRock’s portfolio management function, with certain exceptions due to the uniqueness of particular investment strategies and financial instruments and are operated by BlackRock regulated entities in each jurisdiction.

BlackRock may match and cross orders received in opposite directions in the same financial instrument where permitted by applicable laws, regulations, and client agreements, and when BlackRock believes this is in the best interest of both clients. When this occurs, it is done in accordance with BlackRock's Global Crossing Policy and related procedures, which set out provisions and controls designed to manage potential conflicts of interests between clients participating in such cross trades.

4. Order Handling Protocol

BlackRock takes all sufficient steps to obtain consistently over time, the best possible result for its clients. Subject to the best interests of the client and instructions of the portfolio manager (“PM”), BlackRock must handle otherwise comparable orders for client accounts in the order in which they are received to provide fair and expeditious execution of all client orders.

Subject to local regulatory requirements, and consistent with BlackRock’s duty to seek best execution, BlackRock may find it efficient and beneficial to aggregate contemporaneous orders for multiple clients. BlackRock’s Global Investment and Trading Allocation Policy sets out how BlackRock handles the aggregation of client orders and the fair allocation of financial instruments executed as part of an aggregated order over time.

5. Brokers/Counterparties & Execution Venues

In seeking best execution for its clients, BlackRock may use a variety of execution venues and methods including, but not limited to, agency and principal capacity in very limited circumstances (e.g. block dealing, RFQ platforms, swap execution facilities, and sponsored access to the order books of major execution venues).

BlackRock will either:

  1. Execute an order for a client on an execution venue, or with brokers acting as market makers, liquidity providers or in a principal capacity, or will
  2. Place orders with brokers for them to execute on the execution venue. 

With our clients’ consent and unless there is a regulatory obligation to trade certain financial instruments on trading venues, we may execute trades in financial instruments traded on trading venues outside such venues. This enables us to access a wider range of sources of liquidity and it is particularly desirable when trading illiquid financial instruments and/or large sizes, where we would likely aim to minimize the risk of information leakage or signaling to the market, to avoid a poor execution outcome. In these cases, we may find it more desirable to trade with a broker acting as a systematic internaliser or in a principal capacity.

Although there are benefits to executing trades outside of a trading venue, it should be noted that there is a risk that a broker will fail to meet its obligations in relation to the transaction (‘Counterparty Risk’). While contractual remedies would be available in these circumstances, protections which may be available when trading on venues (such as buy-in procedures) may not be available. Clients can request additional information from BlackRock about the consequences of transactions being executed outside a trading venue.

6. Broker/Counterparty Approval Process

All prospective and existing counterparties require the approval of BlackRock’s Counterparty Risk Group (“CRG”), which operates under BlackRock’s independent risk management function, Risk & Quantitative Analysis Department (“RQA”).

The CRG is structurally separate from the trading and investment functions, and is responsible for developing, implementing and updating, firmwide counterparty credit policies and procedures (collectively the “Counterparty Credit Risk Policy”) that are designed to identify and evaluate counterparty credit risks and establish appropriate practices to manage these risks. All employees responsible for trade execution are required to comply with the Counterparty Credit Risk Policy.

The Global Trading and Investment Teams are required to submit all prospective counterparty requests to the CRG for an independent credit assessment. These views are undertaken at the legal entity level and consider the intrinsic credit quality of the counterparty, together with the expected transaction activities.

7. Ongoing Monitoring of Brokers/Counterparties

The CRG maintains a list of approved counterparties and reviews the list on an on-going basis via a number of sources including but not limited to audited and interim financial reports, rating agency reports and bulletins where available, various databases and news media and, if covered, output from the BlackRock Credit Research Group. All counterparties undergo a cyclical formal review and renewal on a 12 to 18-month basis, which is documented in a form established and/or agreed by the Chief Counterparty Credit Officer.

8. Best Execution Obligation and Relevant Factors

BlackRock performs its best execution obligation to take all sufficient steps to obtain consistently over time the best possible results for our clients when executing or placing, or transmitting, client orders by assessing the relative weight and importance of various execution factors and other relevant considerations under the particular circumstances.

A. Execution Factors

BlackRock may consider any one or more of the following execution factors, as relevant:

  • price of the relevant financial instrument net of brokers’ commissions, execution venues’ fees and other applicable execution costs;
  • costs incurred in execution of the transaction speed of execution;
  • likelihood of execution and settlement;
  • size of the order;
  • nature of the order; and
  • any other relevant factors.

The relative importance of the execution factors for individual orders varies depending on the characteristics of the order, the financial instrument, the execution venues available for execution or placement of that order and the specific market conditions at the time of the trade, such as signals (e.g., indications of interest or axes) about the availability of natural liquidity.

B. Execution Factors and Characteristics of the Order

When generating an order, BlackRock’s PMs specify instructions for the strategy they are pursuing on behalf of clients and for the nature of the order that they are generating. For example, their instructions may vary depending on whether the order was driven by cash inflows or outflows or by changes in the PM’s view regarding a particular investment or type of exposure. Such instructions help influence the prioritization of the execution factors by BlackRock’s traders. The instructions of PMs typically fall into one of the following categories:

Forward Benchmarks

These orders target execution at a price specified by reference to a point in time in the future (such as “market on close” for stocks or WMR Benchmark Rate for currencies) when the calculation of the price will take place, often by way of an auction mechanism.

This type of benchmark is widely used by index sponsors for index calculation and it is also generally used by managers when executing orders for passive strategies in order to minimize their tracking error. Trading is typically concentrated around the specified future point in time, unless a trader believes there will be insufficient liquidity in the auction or at the close of the market; in such cases a trader may extend the trading window to execute outside of the auction while still seeking to manage tracking error appropriately.

Market-on-close orders typically prioritize the execution factors of likelihood and speed of execution at the required time.

Explicit Price Benchmarks

These orders (such as limit or stop orders) specify a price point at which (or at a more advantageous price than which) to buy or sell the relevant amount of a financial instrument. An explicit price benchmark can be used by active investment strategies to help mitigate total expenses. It can also be used by passive strategies, which, for similar reasons, may choose to participate in end-of-day auctions subject to a limit.

Explicit price benchmarks orders inherently prioritise price as the primary execution factor for consideration. If the explicit price benchmark can be satisfied for the order, a trader may prioritise additional execution factors that will most likely lead to complete execution of the order based on prevailing market conditions.

Best Efforts Benchmarks

For orders that are made available to trade immediately, with benchmarks such as arrival price, price at the time of execution or market price at the point in time when the PM assigns the order to the trading desk, are used where available and unless otherwise specified.

PMs may assign a higher degree of importance to one factor over another. For example, for orders where fulfilment of the entire trade is of highest importance, the likelihood of execution is prioritized. This is more often the case when executing orders for active strategies when the PM has a particularly strong view (whether as a result of fundamental analysis or strong quantitative signals) and tends to be less price sensitive to achieve fast execution.

Where the trader has full discretion in the execution of the order, all execution factors are considered and prioritization varies depending on prevailing market conditions, with total consideration and likelihood of execution typically having higher importance. 

Contingent Orders

Contingent orders consider the interdependency of two or more financial instruments on one another, such as the roll of futures contracts or the hedging of a credit instrument. In these cases, it is the collective benchmark of the package that drives the execution factors for consideration, rather than the application of the execution factors to the individual financial instruments that form part of the package or contingent order.

Similarly, traders may also need to consider the impact an order imparts on the overall investment outcome. For example, the execution of an order, which is part of larger basket of orders, may result in a particular investment outcome in the absence of the other orders in the basket also being executed. In such a situation, the calibration of execution timing with regard to the other orders that form the larger basket of orders may drive the consideration of execution factors, so as to minimize or eliminate unwanted market exposure. Further, investment objectives and constraints may limit PMs’ and traders’ ability to prioritise the execution factors.

C. Execution Factors and Characteristics of Financial Instruments

The hierarchy of execution factors that is expressed by a particular type of instruction is complemented by consideration of the characteristics of the financial instrument, as well as consideration of the size of the order, the market conditions at the time of execution of the order, and other relevant facts and circumstances, such that the execution strategy employed for a particular order may differ significantly from executions effected in the same class of financial instruments (and even in the same security) but for different trade sizes and/or in different market conditions at the time of execution.

Listed Financial Instruments

Financial instruments listed on or executed on regulated markets or execution venues that display bids and offers, including both securities and listed derivatives, are typically subject to a high degree of price transparency, which typically limits the need for extensive price discovery. This allows traders to focus more on the execution mechanisms that are available from brokers and whether they can easily facilitate prompt execution while mitigating the impact on the market.

When the order size is considered large relative to the average daily trading volume of the relevant financial instrument, traders will have to manage the risk of signalling to the market the existence of a large trading interest to avoid the potential detrimental impact that this may have on the execution price. Traders may therefore prioritize the use of block trading channels that manage large order sizes.

For illiquid financial instruments (or financial instruments for which liquidity is not concentrated on regulated markets or venues that display bid and offers), the need for price discovery is evaluated against the risk that information leakage might impact the overall execution outcome negatively, which may result in traders requesting quotes from market participants known to offer liquidity in the specific financial instrument to be traded.

Over the Counter (‘OTC’) Financial Instruments

OTC financial instruments that trade in a decentralized market, including both unlisted securities and OTC derivatives, have varying degrees of price transparency. For liquid financial instruments within a reasonable range of tradeable market sizes, traders prioritize trading venues that facilitate price discovery through requests for quotes from multiple market participants. Alternatively, traders may rely on the pricing information contained in alternative pricing sources when selecting a single broker to request a quote for the relevant financial instrument.

For less liquid financial instruments or when the order size is considered large, in order to minimize the potential market impact, traders may choose their counterparty based on its perceived ability to manage large orders in a way that minimizes information leakage, signalling to the market, and market impact.

For the execution of trades in illiquid financial instruments, brokers who trade in the same securities or securities with similar characteristics may be prioritized.

For more complex OTC products, where prices are not directly observable (e.g. convertible bonds or option packages), traders use available internal and external data or tools to assess the fairness of price, and the expected cost of trading, as accurately as possible under such circumstances.

D. Application of Execution Factors to Individual Classes of Financial Instruments

Listed Financial Instruments and Contracts for Difference

  • Shares & Depositary Receipts
  • Exchange Traded Products (Exchange Traded Funds, Exchange Traded Notes and Exchange Traded Commodities) (“ETP”)
  • Contracts For Difference
  • Securitized Derivatives – Listed Warrants & Certificates

All general PM instructions and considerations based on the nature of the order apply to trades in listed instruments.

Orders for listed instruments with forward benchmarks typically are executed in the closing auction for markets where such a mechanism exists. If there is not sufficient liquidity in the auction, then trading might also take place earlier or later to mitigate market impact.

For orders with a best efforts benchmark, BlackRock typically choose an execution method most suitable for balancing price and likelihood of execution. 

Where the size of an order is significant relative to available liquidity in the secondary market, traders may prioritize execution channels which provide supplemental or surrogate sources of liquidity, such as broker capital or primary ETP markets.

Listed Futures and Options

  • Interest Rate Derivatives – Listed Futures & Options
  • Credit Derivatives – Listed Futures & Options
  • Equity Derivatives – Listed Futures & Options
  • Commodities Derivatives – Listed Futures & Options

All general PM instructions and considerations based on the nature of the order apply to trades in futures and listed options. 

Orders for listed instruments with forward benchmarks typically are executed in the closing auction for markets where such a mechanism exists. If there is not sufficient liquidity in the auction, then trading might also take place earlier or later to mitigate market impact.

For orders with a best efforts benchmark, BlackRock typically choose an execution method most suitable for balancing price and likelihood of execution. 

Where the size of an order is significant relative to available liquidity in the secondary market, traders may prioritize execution channels which provide supplemental or surrogate sources of liquidity, such as broker capital markets.

For liquid options within a reasonable range of tradeable market sizes, traders will prioritize trading platforms that facilitate price discovery through requests for quotes from multiple market participants.

Debt Instruments

  • Bonds
  • Structured Finance Instruments

While some debt instruments are listed, they are commonly traded in a decentralized OTC manner.

All general PM instructions and considerations based on the nature of the order apply to trades in debt instruments.

Orders for debt instruments with forward benchmarks typically are executed around the point in time specified by the PM, since there isn’t an official closing auction in these markets. If sufficient liquidity is not available at that time, then trading might also take place earlier or later to mitigate market impact.

For orders with a best efforts benchmark, BlackRock applies a variety of execution methods most suitable for balancing price and the impact of order size on transaction costs.

Money Market Instruments

The execution factors and criteria that BlackRock considers for money market instruments reflect the nature of these orders. Similar to the general considerations, the orders are primarily characterized by PM motivation.

For overnight funding transactions, such as time deposits, completion of the order is of highest importance. As such, likelihood of execution is prioritized, with consideration given to the number of available counterparties and capacity.

For orders where completion is at the trader’s discretion, price and the impact of order size on transaction costs are considered. (See Best Efforts Benchmarks)

OTC Derivatives

  • OTC Derivatives
  • Equity Derivatives
  • Credit Derivatives
  • Interest Rate Derivatives
  • Currency Derivatives
  • Commodity Derivatives
  • Securitized Derivatives

While most derivative instruments are primarily traded in a decentralized OTC manner, some products may be admitted to trading on a trading venue.

All general PM instructions and considerations based on the nature of the order apply to trades in derivative instruments.

Orders for derivative instruments with forward benchmarks typically are executed around the point in time specified by the PM, because there is not an official closing mechanism in these markets. If sufficient liquidity is not available, then trading might also take place earlier or later to mitigate market impact.

For orders with a best efforts benchmark, BlackRock applies a variety of execution methods suitable for balancing price and the impact of order size on transaction costs. Further, due to the OTC nature of these instruments, there is a varying degree of price transparency, so traders also need to reduce information leakage, signalling and market impact.

Different regulations could mandate that some of these instruments are required to be traded on venue.

Other Structured Financial Instruments

From time to time, BlackRock may decide to enter into bespoke structured transactions. When it does so, it seeks to gather structuring proposals and pricing from one or more brokers, taking into account their expertise and subject to BlackRock’s requirement to diversify its counterparty exposure. Typically, such transactions comprise different components and, to satisfy itself that the price proposed by the counterparty is fair, BlackRock may request quotes from more than one counterparty before entering into the transaction or, alternatively, may break the transactions down into their individual components and analyse the implied pricing of each component based on historical or empirical data.

9. Broker/Counterparty & Execution Venue Selection

General Considerations

After prioritizing the execution factors based on the characteristics of the order and the financial instruments, if BlackRock has a choice of a number of brokers or execution venues that could equally fulfill a given order, it selects the individual broker or execution venue by considering further qualitative and quantitative factors. These further factors are often specific to individual financial instruments or classes of financial instruments as the applicable market structure determines the instrument’s liquidity. These additional factors include, but are not limited to:

  • trade confirmation and settlement capabilities
  • ability to avoid information leakage
  • breadth of liquidity access across markets, currencies and products
  • execution quality
  • operational resilience and responsiveness to errors
  • pre- and post-trade execution insights
  • personnel coverage of the venue or broker
  • product offering and customizations
  • research provided, where permitted under applicable regulation
  • liquidity sourcing capabilities (such as the ability to source natural liquidity)
  • willingness to commit capital
  • risk concentration

Further Considerations, by Instrument, in the Selection of Execution Venues

Listed Instruments

Listed financial instruments that trade on an exchange often can be traded electronically. Specific factors for consideration of execution venue selection may include:

  • types, quality and breadth of brokers’ traded financial instruments and functionalities
  • quality of execution measured against benchmark exchange prices
  • availability of algorithms and ability to adapt products to BlackRock’s workflows
  • access to liquidity

OTC Instruments

Venue considerations for OTC instruments vary depending on overall liquidity and the manner in which they trade:

  • for liquid OTC instruments that trade electronically, consideration is given to the type, quality and breadth of Execution Venues; and
  • for instruments that do no trade electronically, consideration is given to venue liquidity, coverage of instruments and sectors and competitive quoting

Money Market Instruments

Specific factors for consideration of venue selection may include:

  • liquidity and availability of instruments offered by the counterparty
  • willingness of counterparties to bid back on paper;
  • product availability, as some issuers will limit the size of issuances available for certain maturities.

Available venues are limited by the issuer in certain instances, such as asset backed commercial paper. Where certain financial instruments are only available directly from the issuer or a small group of brokers, this informs the selection of the execution venue.

10. Prohibited Considerations in Selecting Broker/Counterparties & Execution Venues

BlackRock employees are prohibited from considering the following factors when selecting a broker or execution venue:

  • a counterparty’s placement of, or purchase of, any BlackRock products or BlackRock managed funds;
  • any personal relationships, including former employment relationships;
  • any personal benefit for any person associated with the employee, including but not limited to members of the employee’s family or household in addition to close associates and significant others;
  • any gifts or entertainment received;
  • a broker-dealer’s historical initial public offering or new issue allocations to BlackRock;
  • a broker-dealer’s willingness to accommodate BlackRock’s trading errors.

11. Services and Benefits Received from Execution Venues

BlackRock from time to time may receive the following services and/or benefits from brokers and execution venues:

  • information or documentation relating to financial instruments or investment services that is generic in nature or personalized to reflect BlackRock’s circumstances;
  • issuer commissioned research coverage;
  • participation in conferences, seminars or trading events on the benefits and features of specific financial instruments or investment services;
  • hospitality of de minimis value during certain meetings or events;
  • connected research on an issuer in the context of an issuer capital raising;
  • research provided for a trial period; and
  • such other services and/or benefits that can be considered minor non-monetary benefits under applicable law from time to time.

12. Receiving a Specific Client Instruction

In instances where a client has provided a specific order instruction, BlackRock will be deemed to have complied with its best execution obligation for the specific part of the trade to which the instruction relates. However, BlackRock will continue to apply this policy to those aspects of the order not covered by the specific instruction.

13. Directed Brokerage

From time to time, a client may instruct BlackRock to execute its trades with a particular counterparty or venue or otherwise place limitations on BlackRock’s discretion to determine counterparty, venue or commission. Directed brokerage arrangements typically are documented in a client’s Investment Management Agreement with BlackRock, or a side letter. Subject to applicable regional regulations, such arrangements may involve the receipt of brokerage commissions from the client transactions in exchange for the provision of services directly to the client or the payment of certain expenses on behalf of the client. The execution timing, levels and/or trading costs may be compromised when entering into directed brokerage arrangements.

Alternatively, a client may direct BlackRock to execute a certain proportion of their overall trading to a broker that meets specific criteria set by the client (e.g., an emerging broker). BlackRock traders use their judgment to decide which trades to execute with such directed brokers and balance a client’s directed brokerage requirements with trying to obtain the best overall result for the client.

Implications on Commission Rates.

In directed brokerage arrangements, BlackRock may not be able to freely negotiate commission rates or spreads, obtain volume discounts on aggregated orders or select counterparties on the basis of best price and execution. As a result, directed brokerage transactions may result in higher commissions, greater spreads, or less favorable execution, than would normally be the case if BlackRock were able to choose the broker. 

In certain instances where BlackRock is instructed by a client to execute transactions with a specific broker or dealer, BlackRock may “step out” part of an aggregated order in order to have the directed broker or dealer clear and settle that portion of the trade. 

14. Monitoring

BlackRock performs multiple types of monitoring to help ensure its order execution arrangements remain suitable for the purpose of seeking to deliver the best possible results for clients consistently over time and to assess our best execution obligation. The key types of monitoring include transaction cost analysis (TCA), compliance monitoring and senior management oversight in governance committees (Trading Oversight Committees). The specific scope and content of monitoring may vary depending on the data that is available, for the relevant asset class, in the market. As new data sources and pricing models become available, they are assessed for potential inclusion in our monitoring.

Transaction Cost Analytics (TCA)

BlackRock utilizes in-house TCA systems, to assess whether trading costs are in line with BlackRock’s expectations.

BlackRock’s TCA platform quantifies the full cost of trading, which includes cost contributions from commissions, spreads, market impact, and the opportunity costs from not executing a trade. The total impact from order handling and routing decisions is captured by these measures. Transactions are evaluated against a range of pre-trade, intra-day, and post-trade benchmarks to holistically assess trading performance against the market context. Trading results can be examined in a TCA tool along a broad array of attributes, such as by counterparty, trader, benchmark, or market, allowing for a focused evaluation of each category.

BlackRock performs reviews of its trading activity in regular Trading Oversight Committees which review execution quality, the effectiveness of execution arrangements and the effectiveness of this policy. The Trading Oversight committees are also charged with making enhancements to BlackRock’s execution arrangements and this policy, where deemed appropriate. The oversight committees are global in nature and cover all asset classes. Trading, Investments, Risk, and Legal & Compliance are represented on each Committee.

Compliance Monitoring

The Global Trade Surveillance and Forensic Testing team, a part of the global surveillance team within Legal and Compliance, is responsible for ongoing post trade second line monitoring. The team conducts ongoing, routine, sample based and risk-based tests for adherence to the policy, currently with a focus on pricing, timeliness of execution and broker selection criteria. Any deficiencies identified are escalated to the relevant Trading Oversight Committee.

15. Periodic Review of Policy and Order Execution Arrangements

BlackRock is required, under applicable regulations, to review this policy and its order execution arrangements at least on an annual basis for its adequacy and the effectiveness of implementation.

As part of Global Trading and RQA’s continuous framework for evaluating execution quality and governance, along with oversight processes related to monitoring best execution, BlackRock will consider whether it could consistently obtain better execution results if it were to:

  • include additional or different execution venues or entities;
  • remove any existing execution venues or entities;
  • assign a different relative importance to the best execution factors;
  • or modify any other aspects of this policy and/or execution arrangements.

The effectiveness of BlackRock’s order execution arrangements is tested and monitored by Global Trading and any identified deficiencies are escalated to the relevant Oversight Committees. As new data sources and pricing models become available, they are assessed for potential inclusion in our monitoring. BlackRock tests both the effectiveness of the execution venues that it selects when executing client orders and the execution quality of the entities where it places orders for clients.

16. Conflicts of Interest

Conflicts of interest are a key regulatory risk for any asset manager. The Global Conflicts of Interest Policy (the “Conflicts Policy”) governs BlackRock’s responsibility to place its clients’ interests first and identify and manage any conflicts of interest inherent in BlackRock’s business. The Conflicts Policy requires that BlackRock employees report any actual or potential conflicts of interest to their supervisor and to Legal & Compliance. Amongst other things the Conflicts Policy also requires employees to act solely in the best interests of clients and avoid or otherwise mitigate conflicts of interest, which may involve curtailing or terminating an activity or seeking client consent.

17. Information Provided to Clients

In accordance with relevant regulatory requirements, BlackRock is required to disclose certain information to clients regarding this policy, including appropriate information about BlackRock and its services, and in some jurisdictions, additional information about the consequences of executing outside a trading venue and the entities chosen for execution.

In addition, in certain jurisdictions, BlackRock has an obligation to publish on a website annual reports on the quality of execution attained for 22 classes of financial instruments, separating reports for:

  1. trades executed by Blackrock,
  2. orders placed by BlackRock with third parties for execution and
  3. trades in securities financing transaction