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CONFLICT OF INTEREST POLICY

 

Mirabella Advisers LLP and WisdomTree Europe Limited ("the Firm")

 

CONFLICTS OF INTEREST POLICY AND INVENTORY


October 2016

 

Identification of Conflicts
The Firm has identified and documented the key conflicts (actual and potential) in its day to day business in the conflicts inventory below. This inventory will be periodically reviewed or updated when a new conflict is identified.


Conflict Avoidance

Where a conflict is identified, the Firm will seek to organise its business activities in a manner which avoids such a conflict. However, the avoidance of all conflicts is generally not feasible in a commercial environment.

 

Conflict Management
Where conflicts are unavoidable, the Firm will take appropriate measures to mitigate and manage such conflicts in a manner that seeks to ensure that the Firm or its personnel are not advantaged, and that no client is disadvantaged.

 

Conflicts Disclosure
Where the Firm is not reasonably confident that it is able to manage a particular conflict to adequately protect the interest of a client, the general nature and/or sources of conflicts of interest will be clearly disclosed to the client before undertaking any business.

 

Conflict Monitoring
The Firm has implemented a number of procedures and controls to detect conflict situations as they arise, will update the conflicts inventory accordingly. Once conflicts have been identified, further procedures and controls in place help monitor the effectiveness of the management arrangements of such conflicts.
In addition, the Firm’s compliance monitoring programme incorporates a certain number of the specific tests aimed at reviewing its performance in the management of conflicts that the Firm has identified.

 

Education and Awareness
All personnel receive a copy of the Firm’s compliance manual containing the Firm’s conflicts arrangements. In addition, all Personnel are required to give an undertaking of adherence to the Firm’s compliance procedures, including personal account dealing and receipt of gifts and inducements.

 

Introduction to the business of the Firm

The Firm has two distinct product offerings which it supports – (1) exchange traded securities issued by Boost Issuer PLC ("Boost Issuer") and (2) WisdomTree exchange traded funds issued by WisdomTree Issuer PLC (the "WT ETFs").

 

Boost
In respect of the Boost Issuer, the Firm entered into an Advisory Agreement with Boost Management Limited ("BML") (the "Clients") under which the Firm will (i) submit to BML proposals for the issue of exchange-traded securities ("ETPs") by Boost Issuer Public Limited Company in such format and with such structural features as the Firm deems suitable for the purposes of the business of BML (the "Business of the Client") and Boost Issuer, and (ii) provide general advice and assistance in respect of the Business of BML and the development and marketing of ETPs. In consideration for such services, BML has agreed to pay the Firm fees(the "Client Fees") consisting of a fixed component and a variable component calculated as a set number of basis points on the notional of the outstanding ETPs issued by Boost Issuer ("Boost ETPs"). The financial success of the Firm is thus closely linked to the success of the Business of BML. Boost Management Limited has in turn entered into a Services Agreement with Boost Issuer pursuant to which it provides to Boost Issuer various services in connection with the issuance of ETPs.

 

In connection with the issuance and distribution of ETPs, Boost Issuer has entered into various arrangements: 

  1. Authorised Participant Agreements with various regulated financial entities ("Authorised Participants") setting out the terms under which such Authorised Participants subscribe and redeem Boost ETPs under its Collateralised ETP Securities Programme (the "Boost Programme") in the primary market.
  2. Swap Agreements with major investment banks ("Swap Providers") pursuant to which Swap Providers will provide to Boost Issuer payouts substantially identical to the payouts under the related Boost ETPs.

BML will also enter into arrangements with market makers ("Market Makers") for the provision of liquidity to the Boost ETPs on the exchanges where they are traded.

 

Boost ETPs aim to provide leveraged and short exposure to third party indices. They will only be issued to Authorised Participants and the Firm will only promote them to sophisticated investors who meet eligibility criteria. Investors will need to contact Authorised Participants or Market Makers to buy or sell Boost ETPs or trade them on exchange.

 

Corporate structure

 

WTE_Conflicts_Of_Interest_Policy

 

WisdomTree
In respect of the WT ETFs the Firm acts as marketing agent to the manager (WisdomTree Management Limited (WTML)) of WisdomTree Issuer PLC. The ETFs are issued by WisdomTree Issuer PLC which is an Irish UCITS regulated by the Central Bank of Ireland.
Each of the WT ETFs seek to provide exposure to an index by physically replicating, as much as possible, the constituents of the relevant index. The shares of the ETFs are traded on various exchanges in Europe. Various Authorised Participants have entered agreements with WisdomTree Issuer PLC which forms the basis upon which the Authorised Participants subscribe and redeem shares in the WT ETFs.

 

Conflicts Inventory
Trading and Investment Conflicts
The Firm faces a variety of common trading and investment conflicts, which to a large degree are managed by existing regulatory requirements arising in the context of its conduct of business.

 

Issue Potential Conflict Management Arrangements 
Favouring counterparties In the execution of transactions, the Firm may favour certain counterparties over others where such counterparties offer the Firm or its personnel other products, services, allocations, or other gifts, entertainment or benefits (whether in a professional or personal capacity). In respect of Boost ETPs the Firm does not execute transactions or enter directly into arrangements with Authorised Participants, Swap Providers, Market Makers or any other type of entity involved in the provision of relevant services in connection with the structuring and distribution of Boost ETPs.

Where it advises the client on the selection of relevant Counterparties, the Firm contacts as many entities as it believes, in its experience, that have the ability to best meet the clients’ requirements and then undertakes a thorough due diligence on the quality and pricing of the service levels offered by such entities before it submits a list of suitable Counterparties and its recommendation to the client, with supporting documentation where relevant. The findings of this process are discussed by the relevant personnel before any final recommendations are made to the Client, who can then reject them and propose to Boost Issuer that it engaged with different Counterparties.

Since there is currently only one Counterparty (with the exception of Authorised Participants) for each relevant function under Boost Programme, the only way the Firm could influence the selection of such Counterparties would be by proposing to replace them, which would be a costly and lengthy process that would need to go through the above selection procedures.

The Firm may, however, refer to a list of Authorised Participants or Market Makers if investors contact the Firm for information on who to buy Boost ETPs from. Since trades in Boost ETPs are not channelled through the Firm and the full list of Authorised Participants with their contact details is disclosed on the website and in most marketing materials of Boost Issuer, Investors can freely trade with any Authorised Participant of their choosing. Furthermore, any potential conflicts that may arise out of Authorised Participants attempting to gain business by offering inducements to the Firm or its employees are further minimised by (1) having a Client Fee that aligns the financial interests of the Firm and the Client, and (2) having a gifts and inducements policy.

In respect of WisdomTree ETFs the Firm does not execute any trades. In respect of the choice and selection of Counterparties or service providers, the Firm provides a recommendation to WisdomTree Management Limited ("WTML") which acts as the manager of the WT ETFs, or a selection of preferred candidates based on a due diligence assessment. This recommendation is then assessed and scrutinised by the board of WTML and WisdomTree Issuer PLC which makes the final decision on engaging the Counterparty.
Conflicting positions or trading strategies Having a conflicting position in securities or adopting conflicting trading strategies for different Clients such that dealing for one Client may potentially be detrimental to the other
Not applicable. None of the Firm, the Client or Boost Issuer can take proprietary positions or adopt trading strategies of any type.
Management and performance fees
A failure to properly disclose the amount and basis of calculation of, the fees and commission charged on a particular fund, could give rise to a conflict of interest between the interests of the Firm, its Clients and those of Investors.
All fees are incorporated into the price of Boost ETPs and they are fully disclosed, together with the basis for their calculation, in the Conditions of the ETP Securities, the Base Prospectus for the issue of the Boost ETPs (the "Base Prospectus") and on the website of Boost Issuer. The fees may only be amended by providing prior notice to Boost ETP investors as set out under the Base Prospectus. Similarly, all fees in respect of WisdomTree ETFs are incorporated into the products and disclosed in the product prospectus.
                       

  

Pricing and Valuation Conflicts

The Firm is remunerated by a fixed and variable fee that is paid monthly by Boost Management Limited in respect of the ETPs. WisdomTree Europe Limited will charge a fee to WisdomTree Management Limited in respect of the provision of marketing and operational services.

 

Issue Potential Conflict Management Arrangements
Fees paid to the Firm by the Client are calculated by the Firm. The Firm overstates or otherwise has influence over the calculation of the fees paid by its client The variable component of the Client Fees is agreed by reference to observable inputs: the number of Boost ETPs and their Price per Boost ETP, so there is no scope for the Firm to overstate or influence this calculation. The fee payable by WTML to the Firm is currently will be charged by reference criteria set out in the Marketing Agreement between WTML and WisdomTree Europe Limited ("WTE"). The WT ETFs pay a fixed TER to WTML as prescribed in the product prospectus and any fees paid to WTE will be paid from those proceeds received, as a result WTE cannot overstate the fees and detrimentally impact the clients who hold the WT ETFs. 
Fair valuation of financial instruments  Seeking to overstate or otherwise have influence over the fair valuation of securities and other financial instruments and in particular those which may not have a quoted market price or which may otherwise be difficult to value accurately. All Boost ETPs are quoted and traded on the Regulated Exchanges set out in their Final Terms.
The Firm also calculates the price at which Authorised Participants can subscribe and redeem Boost ETPs each trading day by applying the formula set out in the Conditions for such Boost ETP. The main pricing input is the daily closing price of the index underlying the Boost ETP, which is independently provided by the relevant sponsor of the index and published in various financial information services. All other pricing inputs are fully disclosed in the Conditions of the Boost ETPs and on the website of Boost Issuer, so calculation of this price (the "Price per Boost ETP") is not subject to the discretion of the Firm. The Price per Boost ETP is published on the website of the Issuer and through various information services, so investors can accurately check it by applying the relevant formula and valuation inputs, all of which are transparent and readily available. Any residual risk would be further mitigated by the Swap Provider and the Firm independently valuing each day the Hedging Swaps hedging the Boost ETPs and the corresponding Price per Boost ETP, respectively. The Firm would reconcile these outputs on a daily basis and, if they do not match, a formal reconciliation process is followed by the parties to quickly identify the source of the valuation discrepancies. Records of each valuation and methodology utilised are maintained.

The WT ETFs are quoted and traded on the Regulated Exchanges. The official NAV of the products is calculated by State Street which is the independent administrator of the WT ETFs. The WT ETFs track indices composed of underlying securities which are themselves traded on exchange and meet certain liquidity requirements. 
Pricing and valuation errors Not taking sufficient action to rectify pricing and other valuation errors or anomalies where to do so would have a negative impact on the price and value of those securities.  Processes are in place to ensure that all pricing discrepancies are identified immediately and resolved by set deadlines, as detailed in relevant agreements with Swap Providers and the Collateral Manager. Appropriate escalation and record keeping procedures are in place.

The official NAVs of the WT ETF products are calculated by State Street which is the independent administrator of the WisdomTree ETFs. 
Valuation Policy Not implementing a valuation policy or deviating from the policy which may impact on the fair valuation of financial instruments. As set out above, the Price per Boost ETP is transparent and objective, so there is no calculation of "fair values". Detailed procedures are in place between Boost Issuer, the Firm and various Counterparties which form the basis of the valuation policy. The Firm calculates on each trading day the Price per Boost ETP and compares it against the valuation of the related Hedging Swaps. Any discrepancies between the two would be identified very early on the Valuation Date in which the deviation occurs and trigger reconciliation procedures agreed with the Swap Provider.

WTML has a fair valuation policy in place which delegates the fair valuation of stale securities to WTE. Given the securities contained in the indices tracked by the WT ETFs are all traded on exchange and have been screened for liquidity there is less likelihood of stale prices to occur frequently. 
                             

  

Information Distribution and Disclosure Conflicts
The Firm may disclose different levels of information to its Client(s) or Investors; or may hold information that is not permitted to be used for other Clients.

 

Issue Potential Conflict Management Arrangements 
Side letters and preferential terms  Certain Investors may request preferential treatment or provision of information compared to other Investors in the same Fund(s), which may give rise to a conflict of interest between the interests of Investors to whom preferential rights have been granted, and the interests of Investors to whom preferential rights have not been granted.  All investors in Boost ETPs have access to the same information at the same time, which is composed of the formula for the calculation of the Price per Boost ETP and all the pricing inputs required to check such prices. Investors can also monitor the liquidity provided by designated market makers in the Regulated Exchanges in which Boost ETPs trade.

Investors who are Authorised Participants share in the liquidity available in the primary market, which is provided by the relevant Swap Provider in accordance with set operating procedures that Authorised Participants adhere to.

As disclosed in the Base Prospectus, Authorised Participants may agree directly with the relevant Swap Provider a price for the subscription or redemption of Boost ETPs in the primary market different to the Price per Boost ETP, which Boost Issuer would be required to implement in accordance with set operating procedures.

In respect of the WisdomTree ETFs, all investors have access to the same information at the same time. The index components are publicly available on the WisdomTree website. 
Handling sensitive and confidential information Inappropriate handling of sensitive or confidential information (whether inside information or not) or using such information to trade inappropriately to the detriment of other Clients.  The Firm and its employees are fully aware of the fact that, while the Firm does not have the ability to trade for its own account, it may still cause a detrimental effect on investors and the market for the Boost ETPs if it mishandles any non-public, sensitive information it may have.

The Firm may gain access to sensitive information in the regular course of its business, such as the placement of large orders by Authorised Participants or the intention of the Swap Provider to vary existing trading limits on Boost ETPs (which may have a material adverse effect in the liquidity of the concerned Boost ETPs and the ability of Market Makers and Authorised Participants to arbitrage price anomalies between such Boost ETPs and the underlying indices).

The Firm and its employees have undertaken to keep any non-public, sensitive information strictly confidential and the Firm implements a policy in line with the Market Abuse Regulations (MAR). The Firm is subject to a personal account dealing policy which is managed by Mirabella. Additionally WTML has a MAR policy in place to manage any price sensitive non-public information. As the indices are publicly available and the WT ETFs are passive there is less likelihood of the Firm personnel being privy to price sensitive nonpublic information. 
Chinese walls/ physical barriers to information distribution/attribution
Where the Firm implements Chinese walls or physical barriers to information distribution, there may be inadequate monitoring of such barriers or governance of those individuals above the Chinese wall/ on either side of the barrier to prevent distribution of information. 

The Firm does not believe that Chinese walls or similar arrangements need to be implemented for the following reasons: 

  1. The Firm cannot trade for its own account
  2. The Firm does not engage in advisory services or other activities that may pose a meaningful risk of obtaining access to price sensitive information or confidential, end-user information on which other parties who gained access to such information could improperly trade.
  3. As Boost ETPs are linked to broad, liquid indices, the potential for improper trading on the back of information obtained by the Firm on or through Boost ETPs is low.
  4. WisdomTree ETFs track published indices whose components are publicly available and the Firm is outside of the index rebalancing process conducted by the index provider, even where this is a WisdomTree group company.

The Firm relies on the confidentiality obligations that all employees are required to observe at all times as part of their employment at the Firm.

Timing of publication
The Firm could provide research to one client prior to another, thus creating a conflict of interest between the two client relationships.  All research is disseminated via the WisdomTree website and via circular email so there is no preference shown to specific clients. 
                             

  

Personnel Conflicts
The Firm aims to employ experienced and professional Personnel. However, the actions of a member of Personnel may be influenced, or create an influence over the activities of the Firm.

 

Issue Potential Conflict  Management Arrangements 
Personal account trading   Personnel may trade on personal account in an inappropriate manner, including to the detriment of Clients.  The Firm requires that all employees obtain prior approval from the Firm’s Compliance function before trading any securities (for exceptions see the Compliance Manual) for their own account.

The Firm is in the business of providing marketing and structuring services to the Client in connection with the issuance of Boost ETPs. Since Boost ETPs are linked to diversified indices and selected single commodity indices which provide access to extremely liquid and deep markets, the potential for personnel to engage in improper trading is considered low. 
Inducements and entertainment  Personnel may be influenced in making investment or trading decisions or outsourcing selections when entertainment or other forms of inducement are provided.  The Firm is subject to a gifts and inducements policy managed by Mirabella. All gifts/inducements/entertainment of over £100 is to be notified to Mirabella and logged. All gifts/inducements/entertainment of over £250 is to be preapproved by management and Mirabella.

Personnel of the Firm do not make investment or trading decisions of any type in relation to the Boost ETPs.

The appointment of new Counterparties or the replacement of existing Counterparties or service providers may only be approved by the independent board of directors of Boost Issuer.

The Firm may influence such decisions by submitting proposals. Any such proposal would need to be signed off by the senior management of the Firm, so no employee has undue influence in such process. Any proposals by the Firm would require an exhaustive due diligence process, and any recommendation would need to be submitted with supporting documentation for the independent directors of Boost Issuer to consider. It is highly unlikely that inducements on personnel will have a significant impact on outsourcing decisions. 
Remuneration of employees Remuneration structures may be created that incentivise a member of Personnel to conduct their role within the Firm in a manner that conflicts with the Firm’s regulatory obligations and/ or its Clients. 

The Firm’s staff have performance objectives and reviews semi-annually, and compensation reviews annually. Compensation may be a combination of (i) base salary, (ii) equity and (iii) bonus – paid in equity and cash.

Performance objectives will be set based on each individual’s job and bonuses will be paid based on:

  1. Firm’s performance (assets under management of the Client)
  2. Personal attitude and attributes
  3. Individual objectives: related to their role and position
  4. Compliance and other administration related objectives: these objectives have the potential to significantly reduce an individual’s compensation if not completed satisfactorily. The Firm takes compliance and related issues seriously.

All the above items have a major effect on assets under management (AUM) of the Client and WT ETFs and on the Firm’s overall performance. The Firm has been structured, and individuals appointed, to ensure the longevity of the businesses. The Firm believes that there are no incentives to encourage risk taking or a short term mindset. The Firm’s policies and incentives are aligned and the potential for conflicts of interest is low. The value of the Firm and will be based on an annuity (management fees) paid over the long term. No performance fees are paid to the Firm based on outperformance by the Boost ETPs or WT ETFs since all the Boost ETPs and WT ETFs track passive indices.

Influence over other employees  Responsibilities are not apportioned effectively or Personnel inadequately supervised to avoid collusion or undue influence over others.  Employees’ responsibilities and reporting lines are clearly delineated and individual performance assessed directly by senior management.

Meetings of all staff and teams of employees are held regularly and on an ad-hoc basis (as required) in which the Firm’s senior management assign tasks to employees related to the role for which they have been hired and review the on-going discharge of responsibilities. Only personnel with substantial, relevant experience are hired for each position.

Employee responsibilities may be varied as business needs require, which will be adequately communicated to staff. 
Influence of outside business interests or activities  Personnel who have outside commitments (i.e. directorships, business interests) may be influenced to act in a manner that conflicts with the interests of the Firm or its Clients  Employees are required to disclose any outside commitments of relevance. 
Conflicting roles and responsibilities for personnel  Personnel could be engaged in activity other that the production of research, e.g. sales activity related to broking or personnel could be remunerated in such a way as to cause a conflict in the production of research.  The research team will meet clients and support the sales team but the integrity of their research is paramount. The research team are not compensated based on sales numbers so they are not incentivised to compromise their research in order to secure "quick sales".

Additionally, the Boost ETPs can be used to gain long or short exposure so there is no incentive to have research taking a very specific position in respect of the Boost ETPs.

The Firm strongly believes that the integrity of the research produced is fundamental to the Firm’s longevity and is unwilling to compromise that for short terms gains 
Dealing ahead of published research  Personnel could benefit from PA dealing and then publishing research favourable to their position.  Research released by the Firm is not likely to move the market or influence price of underlying holdings of the products or the products themselves and so we do not see this as a risk. 
                                                 

 

 

Relationship Conflicts
The Firm needs to identify, manage and, where appropriate, separate external relationships.

 

Issue Potential Conflict  Management Arrangements
Distribution relationships  Where the Firm has relationships with third parties for the distribution of the Funds and other investment products, they may be remunerated in a manner to incentivise the promotion of any one Fund or product over any other.  The Firm has not entered into, or expects to enter into, agreements pursuant to which third parties will be remunerated for the distribution of Boost ETPs. While the Firm has not proposed or expects to propose that the Client or Boost Issuer enter into such arrangements, if that were to happen the Client and Boost Issuer would independently assess if such proposal is in their best interest before entering into such arrangement.

The Firm has recommended that the Client enters, and the Client has entered into, arrangements with a Market Maker for the provision of onexchange liquidity to Boost ETPs. Such Market Maker is paid fees by the Client based on notional outstanding on all Boost ETPs in issue. As such, Market Makers do not have an incentive to promote some Boost ETPs over others.

This arrangement is necessary as neither the Firm, the Client or Boost Issuer have trading capabilities and the Boost ETPs require a member of the relevant exchange to provide bids and offers to make a liquid on-exchange market in the Boost ETPs.

The Firm has entered agreements with various platforms for the distribution of the WT ETFs. The Firm will promote WT ETFs and Boost ETPs that are relevant and demanded by an investor depending on the prevailing circumstances and market conditions. 
Investor relationships  Where the Firm has large or otherwise influential Investors they may be provided with greater fund transparency or provided with better fund liquidity.  The structure of the Boost ETPs, WT ETFs, the underlying indices and the payoffs (which include embedded fees and costs) are completely transparent and readily available to all investors without difference.

Liquidity is determined by Swap Providers and Market Makers. 
Execution relationships  Where the Firm has affiliate group companies performing execution services (whether in the UK or otherwise), these may be favoured over other execution firms, and not selected on the basis that they would provide best execution.  Secondary market orders in Boost ETPs are executed through independent, designated market makers. Neither the Firm nor any affiliated entity will execute secondary market orders.

Orders in the primary market are submitted to Boost Issuer by Authorised Participants and executed in accordance with the operating processes previously agreed by all relevant Counterparties and at prices determined in application of formulae and pricing inputs set in the Conditions for the Boost ETPs, which are observable and, for the most part, independently published.

In respect of WT ETFs, the investment manager is a third party which has been appointed and the Firm is not involved in the provision of execution services. The third party investment manager is bound by their own best execution policy.