STATEMENT OF POLICIES AND PROCEDURES TO ENSURE FAIRNESS IN THE ALLOCATION OF INVESTMENT OPPORTUNITIES AMONG CLIENTS
Each client of the Firm shall be sent a copy of this Policy Statement, a copy of which is also filed with Ontario Securities Commission
Fairness Policy Statement
This Policy Statement covers the relationships between CastleMoore Inc. and its clients, those for whom the Firm provides discretionary management services (“discretionary clients”) and those who purchase advice-for-fee (“advisory clients”). It may be amended as necessary, without prejudice to existing clients, to accommodate future expansion in the scope of CastleMoore Inc. business activities.
According the CastleMoore business model, discretionary clients are categorized according to their investor characteristics and risk tolerance, as determined by the Firm’s proprietary methodology. Accounts of a given category are aggregated as though a single account. Thus, investment opportunities are evaluated with respect to suitability to particular “aggregate” accounts. When a long position is created or augmented, the shares accumulated are distributed to individual accounts on a pro-rata basis, based on account size. Individual accounts are simultaneously debited for the shares acquired (for equities), at the weighted average cost per share of the entire accumulation for that trading day.
The same principles apply for the sale from accounts of security positions, except that pro-rata allocations are made based on market values of the security being sold rather than on the entire portfolio, thus avoiding the potential of creating unwanted short positions.
Thus, all individual accounts within the foregoing classification scheme pay or receive the same price per share, subject to rounding.
The following is a partial list of potential deviations from CastleMoore’s general policy on the allocation of investment opportunities:
- An individual account should have adequate cash or margin to accommodate new positions purchased.
- Client preferences are honoured to the best of CastleMoore ability. For example, a client may have an aversion to ownership in tobacco or defence contractor companies, and would thus be excluded from an investment opportunity in these areas.
- CastleMoore is party to an agreement with National Bank Correspondent Network (“NBCN”) providing for custodial and trading services to CastleMoore clients. New clients to the Firm, however, are free to maintain their investment accounts at any dealer they chose. By electing to maintain accounts outside the CastleMoore/NBCN relationship, they commit their assets to the trading service to those firms, likely achieving different results. CastleMoore applies the same standard of fairness to all clients notwithstanding the choice of custodian/trading desk, but cannot guarantee the same execution price across all investment firms.
- Client accounts received by CastleMoore from other institutions, or otherwise inherited by CastleMoore, and which include pre-existing security positions, are considered to be “in transit” or “off-model” (i.e. in the process of being converted over to the Firm’s proprietary management model) and may be excluded from aggregation even when received in their entirety. For instance, an account may arrive at CastleMoore already holding a position in a security being evaluated by CastleMoore’s managers (or a security with similar investment characteristics, such that a swap would not create significant value-added to the portfolio). This account would therefore not participate in a subsequent decision to buy the featured security.
- Only accounts or portions of accounts for which CastleMoore has discretionary power are aggregated.
- Accounts whose mandates differ from CastleMoore’s general mandate may be managed differently, although with equal fairness, than those which more readily lend themselves to CastleMoore’s general management style. Examples include a mutual fund that invests in transportation stocks or a client group that is loyal to a particular sub-advisor employed by the Firm.
- Orders may be only partially filled (pro rata) within the desired range, and accounts may be selected at random for complete or full fills if a pro rata filling results in insignificant allocations such that there is essentially no effect or nominal effect on portfolio performance.
- New issues are allocated on the same basis as secondary ones, with the exception that clients who chose to house their accounts at dealers other than NBCN may receive a greater or lesser allocation that would have otherwise been the case. Notwithstanding, accounts held by employees of the Firm or by the Firm itself are subject to internal review to insure that they do not benefit from favourable new issue allocations, wherever such accounts are hosted. Allocations which too small to be meaningful if spread over more than a small number of suitable accounts are so distributed by random selection.
- A security sale in a particular account may be deferred if the financial benefit from the sale would be outweighed by its tax consequence at the time of sale.
Commissions: CastleMoore’s arrangement with NBCN are inclusive of trading commissions (subject to certain maximums), as are, by extension, the fees paid to CastleMoore by its clients whose accounts reside with NBCN. Thus, for the majority of the Firm’s client base, the allocation of commission is not applicable. Clients opting to host accounts elsewhere are subject to commissions charge by those firms. To the extent that those commissions are negotiable, however, CastleMoore uses best efforts to minimize them.
For a PDF version of CastleMoore’s Fairness Policy, please email: firstname.lastname@example.org