We have put in place a range of procedures in order to identify, monitor, manage and where applicable disclose conflicts of interest that may arise from time to time. The effectiveness of all these controls is monitored on an ongoing basis and forms part of our Compliance monitoring programme.
We place a great emphasis on maintaining a strong compliance culture. This culture is continually reinforced with all staff, and the need always to act in clients' best interest is the cornerstone of our philosophy.
What is a conflict of interest?
A conflict of interest may arise where our interests or those of a member of our staff could conflict with a duty we have to a client.
It is not desirable to enumerate a definitive lists of circumstances in which conflicts could arise; part of staff training in this area is to recognise and remediate or escalate potential conflicts in the course of business. However, to help identify potential conflicts of interest, we have considered a number of areas, including:
- circumstances where we could make a financial gain, or avoid a financial loss, at the expense of a client;
- where financial or other incentives to favour the interest of one client or group of clients over the interests of another client or group of clients might arise;
- where we may or will receive from a third party an inducement in relation to a service provided to the client or us, in the form of monies, goods or services, other than the standard commission or fee for that service.
Managing and monitoring conflicts
We have a number of mechanisms in place to manage potential and actual conflicts, which are summarised below.
1.1. Policies and procedures.
Policies and procedures are embedded throughout the business to ensure conflicts are identified, considered and mitigated. Our employees undergo regular training and receive guidance where conflict situations arise. The management team are responsible for ensuring that their teams have robust controls in place to identify and manage risks which arise. We also have a conflicts register on which details of conflict situations are recorded as well as details of the controls which were put in place to mitigate potential issues.
Where the interests of one team and its clients may conflict with the interests of another team and its clients, the management structure has been separated. We have in place measures designed to prevent or limit any person exercising inappropriate influence over the way in which services or activities are carried out.
We have a remuneration policy which is updated annually. Our staff are remunerated by a combination of:
- Basic salary and related benefits;
- Discretionary annual bonus.
These take into account individual, team and company performance. No employee will directly benefit from any single trade a client may make.
1.4. Gifts & inducements.
We have procedures in place about the giving and receiving of gifts or hospitality. Employees must neither solicit nor accept any inducements which may conflict with our obligations to clients, nor offer inducements which could conflict with the recipient’s obligations to its own clients.
1.5. Outside business interests.
All employees are required to disclose outside business interests and directorships. All such outside interests must be approved by management. We undertake pre-employment screening exercises in order to ensure that Staff are fit and proper and appropriately qualified.
1.6. Personal account dealing.
Our employees are subject to restrictions regarding their own, personal-account, dealing. All dealing or investment accounts must be approved by the management and copies of contract notes are automatically sent to the Compliance department.
1.7. Dealing & allocation.
In order to ensure that deals cannot be allocated in favour of one group of clients or staff, we operate dealing and allocation procedures which cover dealing fairly and in due turn.
1.8. Policy of independence.
Our staff procedures require employees to disregard any material interest or conflict of interest when acting on clients’ behalf.
Our strict client confidentiality policy ensures that all information relating to clients is retained with the firm and treated as confidential information. Confidential information is only disclosed to those entitled to receive it. Staff are prohibited from using any such confidential information for their own interests.
Trading 212 UK Limited will internalise some orders and execute them outside of a trading venue. As our current third party broker does not offer a fractional share solution Trading 212 UK has decided to execute those orders over-the-counter so that it can provide this product to its clients. Some of the regular share dealing order traffic will be executed over-the-counter as well to make the 0 commission service sustainable.
Trading 212 UK Limited has reached an agreement with its sister company Trading 212 Limited for liquidity provision for both those over-the-counter services. Trading 212 UK Limited will pay an annual fee to Trading 212 Limited for the latter to purchase and hold a portfolio of shares, which will be offered to other customers as full shares or fractional shares based on the demand. Trading 212 Limited has agreed to carry the risk of holding those shares long-term as it has calculated that the fee will cover any potential losses.
Trading 212 UK Limited has decided on this approach for the offering of fractional shares as it is the only sustainable option to offer the product to its clients and keep its best execution obligations. Trading 212 UK Limited has decided to offer shares over-the-counter as well in order to be able to afford to offer its innovative 0-commission service to its customers, without selling order routings and adding fees to its customers.
In both cases, best execution obligations will be reached and on most occasions, the conditions would be better than using a third-party broker. Trading 212 Limited guarantees to fill any order routed to it. It will receive orders faster than a venue outside Trading 212’s architecture, thereby lessening the possibility of rejection for price movement. Settlement risk is higher than trading whole shares on exchange, but counterparty risk is part and parcel of fractional shares. Trading 212 UK Limited conducts due diligence on its sister company annually, and has insight into their capital, as a fellow Group member. Trading 212 Limited, will offer flexible size trades, while MTFs and incumbent exchanges have objected to single share or ultra-low value orders, and access to the exchanges has been at risk if such orders are routed. Trading 212 Limited is willing to facilitate small size orders.
The clients will receive prices no worse than those based on reference exchanges, the execution time would be low as it is internal and the likelihood of execution would be guaranteed as even in the unlikely event Trading 212 Limited is not able to provide liquidity for some reason, the order can be routed to a third-party broker. There will be no disadvantage to the client as they will be getting the same or better service as now and Trading 212 UK will receive no incentives from Trading 212 Limited for the service.
The decision related to the routing of orders via a single venue or hedged with sole liquidity providers are made after considering the integrity of the arrangement and its adequacy to avoid any conflict of interest arising. In instances of any actual or potential conflict of interest, Trading 212 UK Limited will abide by the principles of treating its customers fairly and dealing honestly and professionally with all its stakeholders. and will put in place measures to either avoid or manage any such conflict of interest so that our clients are not disadvantaged.
In practice, the conflict of interest arrangements summarised above have been designed to reduce the risk of a conflict of interest being detrimental to a client and in most situations we consider that these will be sufficient to ensure clients’ interests are protected. However, there may be rare occasions where we consider these arrangements are insufficient. In such circumstances it may be possible to disclose the conflict of interest to the client(s) in writing directly or, in the event of a severe conflict of interest, we may need to cease or decline to act on a client’s behalf.