SVB Leerink LLC (“LEER” or “the firm”) is committed to providing the best possible execution to all of its customers. When LEER receives a customer order, it uses reasonable diligence to ascertain the best market for the subject security so that the resultant price to the customers is as favorable as possible under prevailing market conditions. LEER will refrain from conduct that could disadvantage or harm the execution of a customer order or engage in activity that will place its financial interests ahead of its customers.
Depending on the circumstances, LEER, while holding a customer order, may trade in the security for its own account either to:
- Facilitate the order; *
- Liquidate or cover an existing position established in connection with facilitating the order; * or
- Create or modify a bona fide hedge of the risk acquired in facilitating the order.
* (or the order of one or more other customers)
Whenever LEER trades for its own account while holding a customer order, it will do so in compliance with applicable SEC and SRO rules that are meant to protect customer interests, e.g. FINRA Rule 5310 (Best Execution and Interpositioning) and FINRA Rule 5320 (Prohibition Against Trading Ahead of Customer Orders). Customers should be aware that trading activity related to the facilitation of their orders could affect the market for the subject security, regardless of whether LEER trades for its own account. For example, if a customer places a large order to buy a security, LEER facilitation (whether executing as agent or for its own account) may cause the price of the security to increase. LEER may work to limit the risk or hedge before or after a customer order is received. Further, LEER may engage in hedging or facilitation activity prior to the execution of certain orders, such as VWAP orders.
Generally, LEER handles VWAP and other similar type orders on a “best efforts” basis. In a best efforts situation, LEER will make every effort to execute the order at a price equal to or better than the VWAP. In some cases, LEER will not be able to achieve the VWAP or better and the customer is expected to accept the final price; however, if LEER does better than the VWAP, 100% of the price improvement is passed to the customer. When LEER accepts a VWAP order it may facilitate all or a portion of that order as principal (i.e., trade in its own account).
In trading for its own account, in accordance with the terms and conditions set forth above or other similar capital commitment situation, LEER is considered to be “at risk’ because LEER is exposed to the potential upside or downside associated with its capital commitment. Customers may, at their discretion, negotiate with LEER on an order-by-order basis to split any potential outperformance. Absent such negotiation, LEER is expected to accept any upside or downside resulting from the execution of the customer order.
FINRA defines a net transaction as a “principal transaction in which a market maker after having received an order to buy/sell an equity security, purchases/sells the equity security at one price (from/to another broker-dealer or another customer) and sells/buys the stock with the customer at a different price.” As per FINRA Rule 2124 (Net Transactions with Customers), LEER is obligated to provide terms and conditions disclosure and obtain consent from customer prior to executing a net transaction. Generally, an order will only be executed as net when requested by customer.
- For Non-Institutional customers, LEER requires written consent on an order-by-order basis prior to executing a transaction as net. The consent must also disclose that the customer understands the terms and conditions of the order.
- For Institutional customers, LEER is authorized to execute a net transaction for an institutional customer unless the customer opts out and notifies SVB Leerink that net transactions may not be executed on their behalf. Institutional accounts and persons placing orders for institutional accounts may opt out and prohibit net trading by providing notice (i) with respect to any particular order, at the time of placing an order to the LEER representative taking your order, or (ii) with respect to all orders for your account in written form to SVB Leerink LLC, Attn. Compliance Officer, 1301 Avenue of the Americas, New York, NY 10019
PAYMENT FOR ORDER FLOW
LEER does not receive payment for order flow from dealers who are purposely preferenced for order flow. Order routing is driven by anticipated best execution.
In order to access a wide variety of execution venues, SVB Leerink does participate in the maker/taker model. Certain equities exchanges and third party trading centers to which SVB Leerink routes equities and options orders have implemented fee structures under which broker-dealer participants may receive rebates on certain orders. Under these fee structures, participants are charged a fee for orders that take liquidity from (or that provide liquidity to) the venue, and provided a rebate for orders that add liquidity to (or that remove liquidity from) the venue. Rebates received by SVB Leerink from a venue during any time period may or may not exceed the fees paid by SVB Leerink to the venue during that time period. Fee rates and rebate amounts on any given venue may change periodically. SVB Leerink will provide customers additional information regarding fees and rebates upon written request, including the amount per order or per share received by SVB Leerink. Due to the activities above, LEER is considered to be receiving payment for order flow.
SHORT SELLING AND AFFIRMATIVE DETERMINATION
When LEER accepts a short sale order from a client, it is required to obtain the “borrow” information from the client and then document it on the order ticket prior to accepting the order. If the customer has the ability to send orders to LEER via electronic methods (i.e. FIX), they should be aware that the system will not accept the order unless the locate field provided is populated with the correct “borrow” information. It is mandatory that the information should at least include where the “borrow” was obtained, but may also include who the customer spoke with, if applicable, and/or the quantity borrowed. If the “borrow” information contains only information evidencing where the “borrow” was obtained, it is to be assumed that the “borrow” is at least for the quantity of the entire order.
DETERMINING WHERE TO ROUTE CLIENT ORDERS
LEER continually assesses the quality of the markets to which it routes order flow to obtain the best execution on behalf of its clients. In this regard, LEER may, depending on several factors, including the security involved or the size of the order, execute the order with itself as principal or may route client orders to other market centers for execution. LEER stands to share in 100 percent of whatever profits we generate by trading as principal with our customer orders. Several of the broker-dealer market makers and exchanges offer automated execution systems for reported securities as defined in SEC Rule 606 (Disclosure of order routing information). Typically, LEER sends its small orders in reported securities to one of these automated trading centers for execution.
Orders sent to various OTC market makers in listed or OTC stocks may be exposed to certain exchanges and market centers for the purpose of obtaining price improvement. Orders sent to an exchange via an automated routing and execution system have the opportunity to be executed at prices better than the National Best Bid or Offer, either pursuant to a computerized pricing algorithm (in the case of orders in a stock with a spread greater than $0.01) or order exposure features of such systems.
EXECUTION QUALITY AND ORDER ROUTING DISCLOSURE (SEC RULES 605 AND 606)
The Securities and Exchange Commission (“SEC”) approved Rules 605 and 606 of Regulation NMS to improve public disclosure of order execution and routing information and to provide investors the right to certain information.
These reports can also be viewed on the LEER website.
RULE 605 – In accordance with SEC Rule 605, LEER compiles and publishes a monthly report regarding the execution quality provided by its trading desk of orders in equities in which we are a market maker. This report is available at www.svbleerink.com or http://vrs.vista-one-solutions.com/ within one month after the end of the month addressed in the report. These statistics represent only a portion of our executed order flow, and as such, investors should take into account a variety of factors in evaluating execution quality.
RULE 606 – In accordance with SEC Rule 606, LEER compiles and publishes a quarterly report regarding its routing of non-directed customer orders in national market system securities and listed options. This report is available at www.svbleerink.com or http://vrs.vista-one-solutions.com/ within one month after the end of the quarter addressed in the report.
Customers may request a written copy of the report be furnished to them free of charge. In addition, customers may request LEER to furnish a report identifying the venue to which their orders in national market system securities and listed options were routed for execution in the six months prior to the request, whether the orders were directed orders or non-directed orders, and the time of the transactions, if any, resulting from such orders. Please contact your LEER Sales representative to request SEC Rule 606 order routing information.
TRADING ALONG WITH CUSTOMERS
FINRA Rule 5320 states that a member that accepts and holds an order in an equity security from its own customer or a customer of another broker-dealer without immediately executing the order is prohibited from trading that security on the same side of the market for its own account at a price that would satisfy the customer order, unless it immediately thereafter executes the customer order up to the size and at the same or better price at which it traded for its own account.
- Institutional Accounts and Large Orders. With respect to the orders of an “institutional account,” as defined in FINRA Rule 4512 (Customer Account Information) or for Large Orders (10,000 shares or more and greater than $100,000 in value), Rule 5320 permits a broker-dealer to, and LEER may, trade an equity security on the same side of the market for its own account at a price that would satisfy such customer order provided that LEER has provided clear and comprehensive written disclosure to such customer at account opening and annually thereafter and the customer is provided a meaningful opportunity to opt in to the Rule 5320 protections with respect to all or any portion of the order. Institutional accounts and persons placing orders for 10,000 shares or more not otherwise subject to the protections afforded by Rule 5320 may “opt in” to the Rule 5320 protections by providing written notice (i) with respect to any particular order, at the time of placing an order to the LEER representative taking your order, and (ii) with respect to all orders for your account to SVB Leerink, LLC Attn. Compliance Officer, 1301 Avenue of the Americas, New York, New York, 10019
- Market Making Activities. LEER engages in market making activity in various equity securities. With respect to NMS stocks, as defined in Rule 606 of SEC Regulation NMS, LEER may send orders for NMS stocks to other market centers on an agency basis. LEER has developed and implemented internal controls, including information barriers, that operate to prevent its market making desk from obtaining knowledge of customers’ orders not routed to it, and accordingly, our market making desk may trade for our own account prior to completion of your order and at the same or a better price than you receive.
INDICATIONS OF INTEREST
An indication of interest, otherwise referred to as an “IOI”, is a sales message sent from a broker-dealer over the Financial Information Exchange (“FIX”) protocol to institutional customers reflecting an indication of interest to either buy or sell securities. These messages typically are used to solicit institutional trading business and contain the security names, prices and share amounts the broker-dealer seeks to transact during a defined period on a particular day.
SVB Leerink uses the term “natural” IOI to represent:
- Interest of a customer order already in hand;
- An indication of interest (as opposed to an order) from an institutional customer;
- Interest for the broker-dealer’s own account on a proprietary or principal basis or as a result of facilitation; or
- Any combination of the interest described above.
Regardless of the source of the interest, a “natural” from SVB Leerink represents a commitment for the subject shares that the firm will honor if contacted within the appropriate time.