Charles Schwab, U.K., Limited

Charles Schwab, U.K., Limited
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Best Execution


Charles Schwab, U.K., Limited (“CSUK”) is committed to providing its client with Best Execution as detailed within the Best Execution section (11.2) of the Conduct of Business sourcebook ("COBS") of Financial Conduct Authority (“FCA”) Handbook.

The following information is a summary of our Best Execution Policy and is designed to provide an overview of how Schwab U.K. generally executes transactions in different investment types and the execution venues that are used.

Schwab U.K. is required under the U.K. regulatory system to take all reasonable steps to obtain, when executing orders, the best possible result for its clients, while taking into account the execution factors that are relevant to the order.

Execution factors

Price
When Schwab U.K. is executing an order on behalf of a retail client, the best possible result must be determined in terms of the price of the financial instrument and the total costs related to execution (the “total consideration”), including:
  1. Execution venue fees,
  2. Clearing and settlement fees, and
  3. Any fees paid to a third party involved in the execution of the order.
Schwab U.K.'s position is that the cost on any given executed transaction is reflected in the commission charge paid by you. Schwab U.K. publishes its full commission schedule to its customers and does not change the cost based upon execution venue for an order. You will receive the same cost for your order regardless of where Schwab U.K. executes the trade.

You should note that it is not always possible to provide the best possible execution price with a reasonable amount of effort on every order. Schwab U.K.’s approach is to ensure that, overall, Schwab is routing orders to venues that consistently provide the best possible result to our customers. (See “All order monitoring” below for more
information.)

Other execution factors
In addition to the immediate price of a transaction, Schwab U.K. may also take into consideration other execution factors where it believes this will assist in delivering the best possible return in terms of the total consideration paid by you.

These factors include:
  1. Speed, 
  2. Likelihood of execution and settlement,
  3. The size and nature of the order,
  4. Market impact, and 
  5. Other implicit transaction costs.
More generally, when Schwab U.K. executes an order for you, other execution factors include:
  • The financial instrument—available liquidity will impact where orders can be sent.
  • If you are a retail client—if so, then best execution is primarily determined by total consideration.
  • Specific instructions—while Schwab U.K. will apply best execution to orders where you have given it specific instructions relating to execution, it may not be possible to obtain the best possible result if those specific instructions are complied with.
  • Execution venues to which your order can be directed—there are variations in the costs of execution at each venue.

Dealing arrangements for different instruments

Schwab U.K. routes orders in securities (including equities, fixed income and listed options) to its U.S. affiliate, Schwab, which executes the orders through third-party execution venues, as described below.

Equities
Schwab routes equity orders to large wholesale market making brokerdealers, which, because of their size and scale, are able to add liquidity and develop and maintain the most efficient and effective order routing
for purposes of achieving best execution.

Schwab’s order management system and processes are designed to take all reasonable steps to obtain, when executing orders, the best possible result for all clients, taking into account the execution factors. In directing its orders to these broker-dealers, Schwab provides greater liquidity and more price improvement opportunities as a result of automatic execution and liquidity offered by the major wholesale market makers and their deep liquidity pools.

In this way, Schwab obtains higher levels of price improvement for clients through wholesale market makers than if Schwab routed directly to exchanges. Schwab’s order routing also considers speed and likelihood of execution, where appropriate for a particular order, to achieve the best possible result.

Exchange listed options
Schwab routes exchange-listed options orders directly to large wholesale market makers. Those trades are subsequently executed on the exchange on the market maker’s choice, with a focus on execution quality for the orders.

Fixed income
Schwab Bond Source (“SBS”) is Schwab’s proprietary fixed income order management system. It centralizes orders placed by clients and internal representatives and is used by the Fixed Income Trading Desk for order review, routing, and execution.

SBS promotes price competition by connecting to eight sources of liquidity representing thousands of quotes from hundreds of different dealers. This includes three major ATS/ECN platforms (KCG BondPoint, Tradeweb Direct, TMC Bonds), four direct dealer connections (Citigroup, Intl FC Stone, JP Morgan, Piper Jaffrey), and Schwab’s own proprietary markets.

The degree of liquidity provided from these sources varies across individual providers. Clients’ orders are placed versus matched with the best quote available at Schwab for their order criteria by displaying that price at order entry. Upon order entry, the system will perform a second pricing check of the liquidity sources to determine whether any new/ improved quotes have been posted. It will then route the order for execution against the best quote available through these sources.

Execution venues

The variations in the costs of execution venues will be taken fully into consideration in respect of obtaining the best possible result for you.

The principal venues to which Schwab routes equity orders are as follows:
  • UBS Securities LLC;
  • Citigroup;
  • Citadel Execution Services;
  • KCG;
  • G1X;
  • Two Sigma;
  • Cannacord;
  • Cantor Fitzgerald;
  • NYSE;
  • BATS Exchange;
  • NASDAQ;
  • Archipelago; and
  • AMEX.
The principal venues to which Schwab routes exchange-listed options orders are as follows:
  • Citadel;
  • Citigroup;
  • Susquehanna; 
  • Wolverine; and 
  • Morgan Stanley.
Schwab routes fixed income orders to the following:
  • KCG BondPoint; 
  • Tradeweb Direct; 
  • TMC Bonds; 
  • Citigroup; 
  • Intl FC Stone; 
  • JP Morgan; 
  • Piper Jaffrey; and 
  • Schwab’s own proprietary markets.

All order monitoring

Schwab U.K. monitors the activity that Schwab undertakes in monitoring the execution quality provided by the various execution venues to ensure that orders in all financial instruments are routed to venues that have provided high-quality executions over time (with the exception of those orders directed to a specific execution venue by its client).