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This policy is subject to change at any time. Investors who are interested in the current policy can find it at https://crosslightcapital.com/portfolio-rebalance-and-trading-policy/ . We will notify investors by e-mail when the policy is changed.
The purpose of this policy is for us to act in the best interest of our investors, to disclose our approach to best execution that ensures fairness to all investors, and also to strike a balance between:
Due to our broker’s fee schedule, which implements a minimum commission per order, accounts that trade a lower quantity of shares/contracts/units/currency than the minimum commission will receive a worse net execution price (i.e. post-broker commissions), as they will be paying more commissions per share/contract/unit/currency than those above the minimum commission. However, all investors should receive the same fill price (i.e. pre-broker commissions) at market for exchange-traded securities. However, we do not guarantee this as we are not in control of things on the broker side. The complete fee schedule for Interactive Brokers can be found at https://www.interactivebrokers.com/en/index.php?f=1590.
To ensure that current portfolio weights are as close as possible to our model’s target weights, we would have to trade/rebalance as frequently as possible (i.e. daily). However, doing so may result in a large number of very small orders (below our broker’s minimum commission per order), thus incurring a large amount of commissions relative to the value of the shares/contracts/units/currency to be rebalanced. To achieve a balance between the two, we have implemented the following rules based on our attempt to act in the best interest of our investors and to ensure best execution:
On a separate note, more frequent rebalancing may also amplify "whipsaws" and so at the manager’s discretion, rebalancing frequency may be altered to a lower frequency as dictated by market conditions.
| Categorization | Low Volatility Instrument | High Volatility Instrument |
|---|---|---|
| Threshold on Deltas | 1.00%-2.00% |
0.25% |
| Minimum Trade Size | $2,000 (USD) |
$500 (USD) |
| Example Instruments | All Others |
VXX, VIXY, GBTC, ETHE, BITO, ETHX.U |
The exceptions to the rules above are opening a new position and closing an existing position, which are always traded regardless of delta and trade size. The reason for this is that we want to maintain a diversified portfolio (hence the need to open new positions), and also do not want to manage many small residual positions which may add up to a significant amount of market exposure (which would be the case if we did not close small positions).
When needed, in order to manage risk by targeting a specific weight or to maintain a consistent performance across our different strategies, the manager may choose to override these rebalance thresholds for selected instruments or for an entire portfolio.
For a given private-mandate investment strategy, the factors above may result in some differences in performance between accounts with different sizes, and between accounts with the same size but initiated at different times. The approach we implemented is based on our best judgment to achieve the best returns for our investors by minimizing outsized commissions relative to the value of the trade to be rebalanced. Furthermore, we expect larger accounts to receive better performance as commissions paid will be a smaller percentage of portfolio and trade value size, and will also be able to more accurately track our model portfolio. However, this is because of our broker’s fee schedule (which implements minimum commissions per order) rather than us favouring larger accounts.
Trades for individual accounts are always submitted and executed separately and never pooled.
For rebalancing of existing portfolios, including partial redemptions or additional subscriptions, that does not give rise to potential cross trades between accounts under our management, our execution approach is as follows:
| Types of Securities | Approach |
|---|---|
| Traded on exchanges or Delta one CFDs for which the underlying is traded on exchanges |
To achieve fairness to all investors, and because we invest in very liquid exchange-traded securities relative to our total assets under management, all trades for exchange-traded securities are executed daily by market orders at the same time at market open and have limited market impact. Thus, the order in which they are submitted should not matter and all investors should, on average and over time, receive comparable fill prices; however, we do not guarantee this as we are not in control of things beyond the point of submitting orders to our broker. |
| Traded on OTC markets through broker-dealer networks (e.g. GBTC and ETHE) |
Trades are executed daily by market orders at the same time at or slightly after 9:30 a.m. EST/EDT to coincide with the U.S. equity market open. Since these securities are not traded on exchanges, investors may not receive the same fill prices for orders executed at the same time. |
Trades for individual accounts are always submitted and executed separately and never pooled.
For subscriptions and redemptions that do not give rise to potential cross trades between accounts under our management, our execution approach is as follows:
| Types of Securities | Approach |
|---|---|
| Traded on exchanges or Delta one CFDs for which the underlying is traded on exchanges |
On normal trading days, trades are executed by MOC (market-on-close) orders at the same time at market close. On days where exchanges and OTC markets close early at different times due to holidays, trades are also executed by MOC orders at the same time at market close. Thus, the order in which they are submitted should not matter and all investors should, on average and over time, receive comparable fill prices; however, we do not guarantee this as we are not in control of things beyond the point of submitting orders to our broker. |
| Traded on OTC markets through broker-dealer networks (e.g. GBTC and ETHE) |
On normal trading days, trades are executed by market orders at the same time slightly before 4 p.m. EST/EDT to coincide with the U.S. equity market close. On days where US equity markets close early (e.g. the day after Thanksgiving), trades may be executed at the open, during the day, or on the following day at the manager’s discretion. Since these securities are not traded on exchanges, investors may not receive the same fill prices for orders executed at the same time. |
Our broker has systems in place that on a best-efforts basis, do not allow trades to be crossed internally between accounts managed by the firm, and all orders are routed to the open market. Furthermore, our broker has an additional level of measures in place to avoid trades potentially crossing between our investors in the open market. Therefore, to accommodate this, when we have potential trades crossing between two groups of accounts at the open, we will randomly choose one group to be traded slightly after the open. The later execution is normally one minute after the open but may be longer under some circumstances. Similarly, when we have potential trades crossing between two groups of accounts at the close, we will randomly choose one group to be traded slightly earlier than the close. The earlier execution is normally one minute before the close but may be longer under some circumstances. We believe that our approach above ensures fairness to all investors as the time gap allows any short-term market impact of the earlier of the two groups to dissipate, and it is not possible for us to predict whether market pricing will be more advantageous or disadvantageous to either group. Due to our assessment of liquidity of our traded securities and current investor order sizes, trading within a short period of each other, typically one minute after the open or before the close, is not deemed to have any adverse impact. However, the investors traded outside the market open or close may not receive the same fill prices as investors traded at the market open or close, respectively.
At times, in addition to trades executed by the aforementioned approaches, the firm may need to execute further trades anytime for opportunistic reasons (i.e. discretionary trades). Trades that fall into this category are typically more time sensitive. As before, trades for individual accounts are always submitted and executed separately and never pooled.
Furthermore, if liquidity is deemed not sufficient for execution using the regular rebalance approach, the firm may choose to execute specific rebalance orders by means of a VWAP (volume-weighted average price) order.
Our execution approach is as follows:
| Types of Securities | Approach |
|---|---|
| Traded on exchanges or Delta one CFDs for which the underlying is traded on exchanges |
Trades are executed by market (where time sensitive) or market VWAP (due to liquidity considerations) orders. To ensure fairness to all applicable investors, the firm endeavours for executions for an applicable instrument to be submitted as close to each other as possible. Investors may not receive the same fill price due to the difference in times the orders are placed and due to the broker managed VWAP algorithm. The VWAP algorithm breaks an order into orders of smaller sizes (called slices) and spreads the executions of the slices across multiple exchanges and across the period from the start of execution (anytime between market open and market close) up to market close. We expect slices for applicable accounts to have differences between accounts in terms of counts, order sizes, execution exchanges, execution times and execution prices, partly because of differences in the accounts’ trade order sizes and partly because of the algorithm’s order handling logic. The algorithm attempts to match or better the VWAP between time of submission and the market close. For orders of smaller sizes, we expect the difference between the VWAP at market close and the actual fill price to be larger as our broker may impose a minimum slice order size, which may result in an order being executed at several points over the execution period, rather than gradually over the execution period. |
| Traded on OTC markets through broker-dealer networks (e.g. GBTC and ETHE) |
No discretionary trades, except when required for new subscriptions and complete redemptions due to US equity markets closing early (e.g. the day after Thanksgiving). |
To facilitate short positions, the manager submits orders to its broker which requires sufficient securities to be available for borrowing. The number of available shares for borrowing changes dynamically based on supply and demand factors. The allocation of such securities is determined by our broker. Therefore, when there are insufficient borrowable securities, our orders for clients may be filled at different times (and thus prices) as shares become available, and may not be done on a pro-rata basis according to policies and procedures from Interactive Brokers LLC with oversight from CLC.
Furthermore, when there are insufficient borrowable securities to maintain short positions, these positions may on occasion be subject to forced (partial or complete) buy-ins. This process is also managed by our broker, and may not affect all accounts on a pro-rata basis.
When these situations arise, the manager may at its discretion choose to trade an alternative instrument to gain the desired exposure for affected accounts, or to wait for shares to become available again.
Any exceptional situation not covered or not adequately covered by this policy is to be escalated to the CEO and Person Responsible for Compliance for determination of the appropriate course of action based on the guiding principles of best interests of clients, best execution and treating all clients fairly.
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