MEMBER ORDER TRANSMISSION POLICY

POLICY OVERVIEW

Xapo Bank Limited (“Xapo Bank”, “our”, “we” or “us”) is authorised and regulated in Gibraltar by the Gibraltar Financial Services Commission (“GFSC”), as such we are required to comply with certain legal and regulatory obligations. In particular, we are required to put in place adequate arrangements to enable us to achieve, on a consistent basis, the best possible results for our Members when transmitting orders for execution on behalf of our Members.

PURPOSE OF THIS POLICY

The purpose of this Member Order Transmission Policy (“Policy”) is to set out how Xapo  Bank:

• Will comply with its overarching requirement to take all sufficient steps to consistently obtain when executing and/or transmitting orders to other entities for execution, the best possible results for its Members;

• Selects and appoints third party providers for order execution on its Members’ behalf.

POLICY STATEMENT

It is in the interests of Xapo Bank’s Members that we obtain the best possible result when executing and transmitting orders received from our Members to third parties for execution. Xapo Bank is committed to taking all sufficient steps to obtaining, on a consistent basis, the best possible result for its Members when executing and transmitting orders for execution on its Members behalf.

SCOPE OF THIS POLICY

This Policy applies to Xapo Bank when it acts on behalf of its Members when executing and transmitting orders to third parties for execution, and it has agreed to provide Members with the best possible result with respect to the execution and transmission of such orders.

WHO MUST COMPLY WITH THIS POLICY?

This Policy applies to all officers, employees, contractors, consultants, casual workers and agency workers regardless of the type of engagement, level or affiliated entity they work for.

ROLES AND RESPONSIBILITIES

The following table sets out the respective roles and responsibilities within Xapo Bank for Xapo Bank’s best execution arrangements:

WHAT IS BEST EXECUTION?

Best Execution refers to the overarching requirement for Xapo Bank to take all “sufficient steps” to obtain the best possible result for each Member on a consistent basis. In order to do this, Xapo Bank must take into account certain execution factors.

In achieving best execution on a consistent basis, it should be noted that this does not require Xapo Bank to undertake a transaction by transaction analysis, but rather to take all sufficient steps to obtain the best overall results having regard to the best execution factors as described within this Policy.

ARRANGEMENTS FOR ACHIEVING BEST EXECUTION

In order to meet its obligations with respect to the achievement of best execution for the execution and transmission of its Members’ orders, Xapo Bank has put the following arrangements in place to ensure the prompt, fair and expeditious execution of Member orders, relative to other Member orders or the trading interests of Xapo Bank:

• Xapo Bank has established, implemented and maintains this Policy which is designed to achieve the best possible result (taking into account all relevant factors as described further below), across all Member orders on a consistent basis;

• Xapo Bank only utilizes third parties for its Member orders where it is satisfied that those third parties will effectively obtain best execution;

• Xapo Bank takes steps to monitor the quality of execution obtained;

• Xapo Bank reviews and updates this Policy on a regular basis (at least annually) to ensure that it continues to achieve the best possible outcome on a consistent basis for its Members. 

THE BEST EXECUTION FACTORS

In achieving best execution, Xapo Bank takes into account a number of factors (unless otherwise instructed by a Member, as discussed below). These include:

• Price – the price a financial instrument is or may be executed at (including external costs and Xapo Bank’s fees and charges);

• Cost – any “external” cost relevant to the execution of the Member order (e.g.; any costs charged by third parties which are related to the execution of a transaction, and which are directly passed on to the Member such as: execution venue fees, clearing and settlement fees and any other fees paid to third parties);

• Speed – the potential time it might take to execute a transaction;

• Likelihood of execution and settlement – the likelihood that we will be able to complete a Member transaction, including (but not limited to) an assessment of any counterparty being used to execute the order;

• Size of the Order – the size, or quantum, of the transaction;

• Nature of the Order - the type of order, including, but limited to whether it is a market, limit or stop order;

• Any other considerations relevant to the execution of the order.

THE ROLE OF PRICE

While total consideration (price and cost) are generally key factors in achieving best execution, the overall assessment of achieving the best possible result may be affected by the other factors listed above. For example, the relative importance of each of the factors will differ depending on:

• The characteristics of the Member including their categorisation as a retail or professional client;

• The characteristics of the Member’s order;

• The characteristics of the financial instruments that are the subject of that order;

• The characteristics of the execution venues to which that order can be directed.

For Retail and Professional Members, the price and cost of execution will normally be the most important aspect in achieving the best possible result. However, in the absence of specific Member instructions, Xapo Bank will take into consideration all factors that will allow it to deliver the best possible result in terms of the total consideration, representing the price of the financial instrument and the costs related to execution insofar as they are instrumental in delivering the best possible result in terms of the total cost to the Member. 

MEMBER SPECIFIC INSTRUCTIONS

Xapo Bank makes all decisions as to where its Members’ orders are placed and who it places Member orders with. Xapo Bank does not accept client specific instructions.

EXECUTION VENUES AND THIRD PARTY PROVIDERS

An execution venue is effectively a trading venue such as a regulated stock exchange where investment transactions are executed. Xapo Bank does not execute orders or deal directly with execution venues in relation to equities, exchange traded funds or funds not traded on exchanges or markets.

Instead:

• For equities and exchange traded funds, Xapo Bank transmits Member orders to an investment platform operated by a third party broker who executes the order on the Member’s behalf; and

• For funds not traded on exchanges or markets, Xapo Bank transmits orders directly to the relevant “Fund Operator”, being the fund itself, fund administrator, or fund manager, for processing and execution in accordance with the fund’s terms and conditions.

The third party brokers utilized by Xapo Bank have their own regulatory responsibilities to obtain, on a consistent basis, the best possible results for Xapo Bank’s Members when executing or handling orders for equities and exchange traded funds on behalf of Xapo Bank’s Members. Similarly, in the case of funds not traded on exchanges or markets, the Fund Operator is responsible for processing subscriptions and redemptions in accordance with the fund’s governing documents, regulatory obligations and execution policies. 

Xapo Bank undertakes periodic monitoring to ensure it is meeting its best execution obligations when executing and transmitting orders on its Members’ behalf. This includes monitoring the execution quality and operational performance of third-party brokers for equities and ETFs, as well as ensuring that transactions relating to funds not traded on exchanges or markets are processed in a timely and accurate manner by the Fund Operator.

Xapo Bank will carry out due diligence on such third parties to ensure that they enable Xapo Bank to comply with its Best Execution obligations. In selecting third parties for Member order execution, Xapo Bank considers at least the following factors (where applicable): liquidity and price; credit and settlement risk; operating models and infrastructure; execution venue or fund processing costs; and speed and likelihood of execution.

Use of single execution venue and third party brokers

When selecting execution venues and third party brokers, Xapo Bank will utilize a single counterparty only when it is able to show that this allows it to obtain the best possible results for its Members on a consistent basis. Xapo Bank will monitor its use of single counterparties to ensure that it can continue to reasonably expect that the selected counterparty will enable Xapo Bank to obtain results for its Members that are at least as good as the results Xapo Bank could reasonably expect from using alternative counterparties for Member order execution. Xapo Bank’s ongoing monitoring will be supported by relevant data published in accordance with applicable regulatory requirements and other internal analysis conducted by Xapo Bank.

How does this work for funds which are not traded on exchanges or markets?

Where funds are not admitted to trading on an exchange or market, Members can only buy or sell interests in them through the relevant Fund Operator at the frequency set by the relevant fund’s governing documents.. Therefore, Xapo Bank deals directly with the Fund Operator. 

This means we have no choice about where or how those orders are executed, and so we have very limited scope to affect the outcomes achieved for Members when they deal in those funds. 

These orders will be executed with the class that is most beneficial to the Member, in accordance with the requirements for each class as set out in the prospectus or offering memorandum of the relevant fund.

Third Party Payments/Inducements

We take all appropriate steps to identify and to prevent or manage conflicts of interest between Xapo Bank and our Members, or between one Member and another Member, that may arise in the course of providing our investment services.

With regard to inducements, except in those limited circumstances where the applicable legal and regulatory rules on inducements allow so, we do not pay to, or accept from, any third party any fee or commission or provide to, or receive from, any third party any non-monetary benefit in connection with the provision of our investment service.

In line with the best execution obligation and our obligations relating to inducements and conflicts of interest, Xapo Bank does not receive payment, remuneration, or commission from the third party broker or any other third party in relation to the execution of your orders – a practice described as ‘payment for order flow’.

Where Xapo Bank (or a related entity within its group) has set up, or is in partnership with, a fund not traded on an exchange or market, that is subsequently made available to Members via the Xapo Bank platform, there is a possibility that:

• Xapo Bank or an affiliated entity may receive a portion of the management or performance fees generated by the Fund Operator for any functions it provides in relation to such a fund.

• Members may not be directly charged for investing in the fund through the Xapo Bank platform, but Xapo Bank or an affiliated entity may still derive indirect financial benefits.

To ensure compliance with the applicable laws and regulations relating to inducements and/or conflict of interest rules, Xapo Bank will:

• Clearly disclose to Members if it, or a group entity, receives a financial benefit from a fund available on its platform.

• Provide details of any management or performance fee-sharing arrangements, including how they may impact Members.

• Explore providing a diversified range of investment options.

COUNTERPARTY MANAGEMENT 

Xapo Bank only utilizes preferred third party brokers and providers who have the skills, resources and capabilities to provide favourable access to suitable liquidity and a greater potential for an advantageous outcome in the execution process.

Xapo Bank conducts a commensurate level of independent due diligence, including an assessment of potential conflicts of interest prior to any third party broker or provider being approved and added to the approved list.

Xapo Bank only places orders to be executed with approved third party brokers and providers. The list of approved third party brokers and providers is reviewed regularly and may change over time. The performance of third party brokers and providers in providing Best Execution for Xapo Bank’s Members is evaluated regularly.

CHARGES

It is Xapo Bank’s policy that commission and charging structures will not influence either the selection or third parties to which it places Member orders, or the order flow that follows, as a result of the execution process. 

MONITORING AND OVERSIGHT

Xapo Bank will monitor the effectiveness of its Best Execution arrangements as documented in this Policy on a regular basis (and at least annually) in order to identify any enhancements necessary to ensure the achievement of the best possible result on a consistent basis for its Members and will update its policy and arrangements as required in order to incorporate such changes.

BREACHES OF POLICY

Any breaches of this Policy will be taken very seriously and could lead to disciplinary action for staff, including up to dismissal and/or termination of a third party relationship.

POLICY REVIEW 

This Policy will be regularly reviewed (on at least an annual basis or more frequently if required) and updated as necessary.

Appendix 1 – List of Third Party Brokers and Providers

Below is a list of third party brokers and providers that Xapo Bank uses to obtain Best Execution for its Members:

• DriveWealth LLC - Equities and Exchange Traded Funds 

• Xapo Byzantine BTC Credit Fund