Best Execution Policy

UBS Securities Japan Co., Ltd. (December 2023)

This best execution policy set forth in accordance with Paragraph 1,Article 40-2 of Financial Instruments and Exchange Law defines the policy and methods in which ensures the best trade execution condition for the client.

Upon acceptance of a client order for securities listed on a financial instruments exchange in Japan, if there is no instruction from the client regarding the method of execution, UBS Securities Japan Co., Ltd. ("the company") will endeavor to execute that order in accordance with the following policy:

1. Securities covered in the policy

(1) Shares of stock, bonds with stock acquisition rights (convertible bonds), ETFs (beneficiary certificates in investment trusts linked to a stock index), REITs (investment certificates in real estate investment trusts) which are listed on a financial instruments exchange in Japan, as well as, securities constituting "listed share certificates, etc.", as prescribed under Article 16-6 of the Financial Instruments and Exchange Law Enforcement Order.

2) "Securities Handled" or more specifically Phoenix issues and bonds with stock acquisition rights (convertible bonds) as set forth in Item (4) or Article 67-18 of the Financial Instruments and Exchange Law.

2. Method of executing a trade in the best conditions

Definition of Terms;

  • "PTS" is a Proprietary Trading System stipulated in Article 26-2-2, Paragraph 7 of the Order for Enforcement of the Financial Instruments and Exchange Act.
  • "Dark Pool" is an Internal Trading System stipulated in Article 70-2, Paragraph 7 of the Cabinet Office Order on Financial Instruments Business.
  • "Financial Instruments Exchange Markets etc" collectively refers to financial instruments exchanges in Japan, PTS, and Dark Pool.
  • "SOR" (Smart Order Routing) refers to a method in which an electronic information processing system automatically selects Financial Instruments Exchange Market etc for execution at the most favorable price among Financial Instruments Exchange Markets etc or the provision of trades by such method.
  • “Latency Arbitrage” refers to a trading strategy utilizing market fluctuations in financial instruments exchange markets, market differences, etc. caused by the difference in the time required to execute an order, stipulated in Article 124, Paragraph 2, (i) - c.
  • “IOC” (Immediate Or Cancel) order refers to an order type that automatically cancels (does not get on the board called “Ita”) except for orders that can be executed immediately.

(1) Listed stocks etc. (excluding securities issued by foreign companies)

[1] Method of execution when using SOR

SOR is available at "the company" ("UBS SOR"). At the request by the client, SOR can be used for the eligible stocks listed on Tokyo Stock Exchange (“TSE”).

Financial Instruments Exchange Markets etc which are compared with the price:

Financial Instruments Exchange Markets etc which are compared with the price by UBS SOR (“SOR target markets etc”) are TSE, PTS operated by Cboe Japan Limited (Cboe Alpha, hereinafter referred to as "Cboe Japan PTS"), PTS operated by Japannext Co.,Ltd. (J-Market, hereinafter referred to as "Japannext PTS") and Dark Pool operated by "the company" ("UBS Dark Pool").

Method and order of selection of Financial Instruments Exchange Markets etc:

UBS SOR compares the indicative price of the SOR target markets etc and places an order with Financial Instruments Exchange Markets etc that offers the most favorable price (hereinafter referred to as "the best indicative price"). The client can select Financial Instruments Exchange Markets etc which are compared with the indicative price at the client’s discretion among SOR target markets etc.

If the best indicative price available is same across multiple Financial Instrument Exchange Markets etc, in principle, UBS SOR place orders in the priority of UBS Dark Pool, TSE, Cboe Japan PTS, and Japannext PTS, which is subject to change due to market conditions etc. However, as UBS Dark Pool executes only at the TSE mid-price, it will not be the same best indicative price as TSE.

"The company" does not accept orders directly from retail clients.

Measures for Latency Arbitrage:

In order to cope with latency arbitrage, UBS SOR places IOC orders to PTS.

[2] Method of execution in the case where UBS SOR is not used;

UBS SOR can not be used for the listed stocks listed only on other financial instruments exchanges than TSE. In cases that UBS SOR can not be used in this way, or if the client does not wish to use UBS SOR even if it can be used, the execution method is as follows.

[1] At the time an order is received from a client, "the company" will send an order to selected financial instruments exchanges designated in section [2] below. For those orders received from a client after financial instruments exchange auction session, "the company" will brokerage the order once the auction session on the financial instruments exchange reopens.

[2] Agency orders to be brokeraged to domestic financial instruments exchanges described in section [1] above will be executed as follows:

(a) Where the securities are listed on one financial instruments exchange (single listing) the company will brokerage the order to that exchange;

(b) Where the security is listed on multiple exchanges (multiple listing), the trade will be executed on the QUICK Principal Market (such market is the one which QUICK Corp. settled in consideration of the principal market selected by NIHON KEIZAI SHINBUM INC. for the purpose of the current price assessment use of a welfare annuity fund) which is the same market that will be retrieved when entering only the security code of this stock. However, in the case of additional listings and/or de-listing of the security which may cause rapid move in the turnover, the selection of the execution market may be made regardless of the above selection. The details of this policy will be available at our Tokyo office upon request from clients.

(c) If the company is not a participating member nor has any membership for the financial instruments exchanges selected in (a) or (b) above, the company will brokerage the order to that financial instruments exchange through an exchange participating member with whom "the company" has an agreement to liaise brokerage to that financial instruments exchange.

(2) Listed stocks etc., issued by a foreign company

For listed stocks issues by a foreign company, when orders are received from the client, the order will be brokeraged to an overseas UBS group securities broker responsible for the foreign financial instruments market where this security is traded (if the order is for a client who has an account opened with overseas UBS group securities broker, "the company" will intermediate the brokerage trade to the overseas UBS group securities broker). (unless an agreement is made with the client on an individual trade basis, "the company" will not brokerage orders through to those domestic financial instruments exchanges in which the security is listed, PTS nor to any other off exchange brokerage activities)

Where a security is traded on multiple overseas securities markets, "the company" will brokerage an agency order to the overseas UBS group securities broker responsible for the issuers’ home country market. This is because it is believed that the execution in the issuers’ home country market meets the client’s expectation.

For the UBS group securities broker entity names for which "the company" does brokerage and intermediate to, official entity names will be provided by contacting "the company".

(3) Securities Handled (Phoenix issues)

In principle, "the company" will not accept orders for Securities Handled i.e. Phoenix Issues. However, if "the company" receives a sell order from a client, "the company" will brokerage the order to a financial instruments broker that can solicit investment in these issues.

If there is only one financial instruments broker soliciting this issue, the company will brokerage the order to that financial instruments broker. If there is more than one financial instruments broker that can solicit this issue, the order will be brokeraged to the financial instruments broker offering the indicative price most favorable to the client at that time.

There may be some orders, depending on the issue, that the company may not be able to accept.

3. Reasons for selecting the relevant execution method of above 2.

(1) Listed stocks etc. (excluding securities issued by overseas companies)

(1) Reasons for selecting the method of execution when using SOR

Reasons  for selecting SOR target markets etc:

In addition to TSE, reason why UBS SOR includes Cboe Japan PTS, Japannext PTS, and UBS Dark Pool in its target markets is because it is expected to increase the possibility of executing at a more favorable price. In addition, the reason why UBS Dark Pool is in scope is because it is considered that it will not only increase the possibility of executing at a more favorable price, but also reduce the market impact.

Reasons for selecting the method and orders of Financial Instruments Exchange Markets etc:

The reason why UBS SOR selects Financial Instruments Exchange Markets etc that offers the best indicative price from SOR target markets etc and place an order to it is because there may be a price improvement effect compared to the indicative price of the TSE, and it can be considered that it can realize order execution that will benefit clients. When the best indicative prices are the same in multiple Financial Instruments Exchange Markets etc and UBS Dark Pool is included, the reason why we select UBS Dark Pool in preference is because it can be considered that it can reduce the market impact. The reason why TSE is preferred when the best indicative price is the same in multiple Financial Instruments Exchange Markets etc and TSE is included is because it can be considered that TSE has the most liquidity and it can increase the opportunity to execute. In addition, the reason for the selection of Cboe Japan PTS over Japannext PTS among PTSs is because there is a possibility that may be executed at a more favorable price in consideration of the reversion etc of each PTS, but this may change in the future.

Reasons for selecting the policies and the measures for latency arbitrage:

This is because placing orders in the mentioned way is considered to reduce the possibility of latency arbitrage intervention.

(2) Reasons for selecting the method of execution if SOR is not used:

Financial instruments exchanges have high concentration of client demand from number of investors and when compared to other execution venue, it is advantageous in liquidity, probability of settlement, and execution speed. Therefore, unless there is an overall agreement between the client and UBS Securities Japan on instruction regarding the execution method or any specific client instruction regarding the execution method on an individual trade basis, it is believed to be the most rational choice for the client to execute their trade on this exchange.

In the case where a security is listed on multiple exchanges, the company will execute the trade on the market where liquidity is highest because it is believed that this the most appropriate option for the client.

(2) Listed stocks etc., issued by a foreign company

At UBS Securities Japan Co., Ltd., when agency orders for listed stocks etc. issued by a foreign company are received, the company only brokerages these orders to an overseas UBS group securities broker (for those clients who directly hold an account with the overseas UBS group securities brokers, "the company" will act as an intermediary broker for the client's agency order to the overseas UBS securities broker), the company will not act as a direct counterpart to the client nor will not brokerage any agency orders to those domestic financial instruments exchanges in which the security is listed. The reason behind this is that the foreign financial instruments markets that the overseas UBS group securities brokers select as the executing market have high concentration of client demand from number of investors, provides highest liquidity and has high clarity and fairness which leads to believe that it is considered the most advantageous execution style in terms of the price, probability of settlement, and execution speed among agency execution style serving as the most appropriate option for the client.

Where a security is traded on multiple foreign financial instruments markets, "the company" will brokerage an agency order to the overseas UBS group securities broker responsible for the issuers' home country market. This is because it is believed that the execution in the issuers’ home country market meets the client’s expectation.

(3) Securities Handled (Phoenix issues)

In principle, "the company" will not accept orders for Securities Handled i.e. Phoenix issues.

However, "the company" believes it is important to satisfy the needs of the clients who wish to dispose these securities held from when still listed as quickly as possible. It is believed that placing sell orders for these securities to a financial instruments broker that can solicit these investments and has high concentration of orders will secure higher probability of settlement and increase the possibility of total disposal of the client’s securities.

4. Other

(1) Notwithstanding 2. above, "the company" will execute the following types of transactions as indicated below:

[1] Orders that have been instructed to be executed at the open or the close of TSE are placed with TSE.

[2] A transaction where a client has specified the method of execution (by requesting that "the company" act as a direct counterpart, execute on a specific exchange, or specifying an execution time range):
Execution based on overall agreement or execution as instructed.

[3] Execution under an investment management trading agreement, etc.:
"The company" will execute by a method of choice within the authorized discretion under the investment management agreement with the client.

[4] Transactions in which the execution method is specified by means of General Terms or the like, such as cumulative stock investment or stock mini investment, etc.:
The stated method of execution

[5] Odd-lot shares or shares less than a trading unit:
The company becomes the counterpart in the execution (however, there might be cases where the company cannot become a counterpart for the execution)

[6] Execution under discretionary agreements defined under Item 8-ロ, Paragraph 1 of Article 16 of Cabinet ordinance regarding definitions under Article 2 of Financial Instruments and Exchange Law:
"The company" will execute by a method of choice within the authorized discretion under the investment management agreement with the overseas UBS group securities broker.

[7] Reverse trades on System Margin trades:
Execution in the market where a Margin position has been opened.

(2) There may be cases where as a result of system failure(*), "the company" may have to execute using a method other than the method derived from the best execution policy. In such cases, the company will endeavor to execute on the best terms possible. (*Including the occurrence of a system failure of "the company" and the occurrence of a system failure in the Financial Instruments Exchange Markets etc.)

The duty of best execution not only relates to price but also involves the consideration of various factors including cost, speed and certainty of execution. Even if a trade appears not to have been executed at the best possible price afterwards, it does not necessarily constitute a violation of the duty of best execution by itself.

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