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What is an Order Routing Report?

An order routing report displays the market center your orders were routed to for execution. A market center can be a market maker, which is a company that buys and sells securities from its inventory, or an exchange, such as the New York Stock Exchange. The market center we list is the initial market center we routed an order to. It may not be the actual center that executed the order. For example, we may send an order to a market maker who then sends it to an exchange to be executed.

If any of your window orders were matched with another customer’s orders, they will not be displayed in your order routing report. Those trades are executed internally, between the bid and ask price, which gives you better prices on your buys and sells.

An order routing report does not list execution information, such as the price or time of your execution.

The following information will be displayed for each security:

  • Date and time an order was routed to a market center
  • Name and symbol of each security
  • Share amount
  • Market center that received the order

What is the Message Center?

The Message Center is located on the accounts page and is the primary place to which we deliver account alerts, required notifications, product information and other important data related to your account and your clients’ accounts.

We will automatically send all messages to both your Message Center and your clients’ Message Center, as well as to both you and your clients’ primary email addresses.

You can update your notification settings by selecting Notification Settings in your Message Center. Similarly, your clients can edit notification settings by going to their Message Center (at www.FolioClient.com) and selecting Notification Settings.

What is a Trade Threshold?

In some instances, small “minimal” orders occur when you sync your model. These are orders that are generally too small to have a meaningful impact on overall account performance, but which can have unintended adverse consequences such as:

  • Additional transaction tracking and reporting for taxable accounts
  • Cluttered accounts, transaction history, trade confirmations, customer statements, and tax documents
  • Delays in posting executions

We have two trade thresholds to eliminate nuisance orders: a Percentage Trade Threshold and a Dollar Trade Threshold.

Model managers tailor the percentage trade threshold for each model, while firms set a universal dollar trade threshold for all their managed accounts.

Orders from model syncs must pass both of the percentage and dollar trade thresholds to generate. Orders that do not meet the percentage trade threshold or the dollar trade threshold will not generate.

  • Percentage Trade Threshold: is the minimum percentage by which the current weight of a security must deviate from its target weight before an order will be placed for that security. Orders for client holdings with deviations less than the allowable threshold will not be generated.
    • The model manager sets the Percentage Trade Threshold.
    • The Percentage Trade Threshold applies to model syncs only.
  • Dollar Trade Threshold: is the minimum dollar amount that a trade must meet before an order will be placed to make that trade. Orders for individual securities of a dollar amount less than the dollar trade threshold will not be generated.
    • The Dollar Trade Threshold is set at the firm level. To set or alter your firm’s dollar trade threshold, please contact a Folio Advisor Team Member.
    • The Dollar Trade Threshold applies to both model syncs and allocation rebalances.

Example - A Subscribed Folio with Percentage and Dollar Trade Thresholds: for orders to be generated, they must pass both the Percentage Trade Threshold and the Dollar Trade Threshold.

Target Weight Current Weight Deviation Percentage Trade Threshold Order Amount Dollar Trade Threshold
Security A 10% 9.8% 0.2% 0.5% $2 $5
Security B 5% 5.6% 0.6% 0.5% $3 $5
Security C 20% 19.6% 0.4% 0.5% $8 $5
Security D 10% 10.8% 0.8% 0.5% $8 $5

In this example,

  • The order amount for Security A does not meet either threshold, so a buy order will not be placed.
  • The order amount for Security B meets the percentage trade threshold, but does not meet the dollar trade threshold, so a sell order will not be placed.
  • The order amount for Security C meets the dollar trade threshold, but does not meet the percentage trade threshold, so a buy order will not be placed.
  • Finally, the order amount for Security D meets both thresholds, so a sell order will be placed.

What happens when Thresholds are ignored?

There are two instances where a minimal trade is placed regardless of its adherence to these thresholds. This occurs in the following situations:

  • Your order was a “sell all” order: you place a sell all order to clear a position out of a Folio. Therefore, we do not block such trades and these orders are always placed regardless of whether or not they meet threshold criteria.
  • Your order had an excess of sell orders below the threshold: this may occur due to the process by which minimal trades are discarded. We drop all minimal buy orders first and then drop all minimal sell orders, from smallest to largest, until all dropped buy orders are offset by the dropped sell orders. Any sell orders that remain after the buy orders are discarded are placed as normal orders. Any buy order amounts that remain after all minimal sell orders are discarded are invested in cash.

Example - an Exception to a Threshold

Order Side Order Amount Dollar Trade Threshold Discarded?
Security A Buy $2 $5 Yes
Security B Buy $10 $5 No
Security C Buy $3 $5 Yes
Security D Sell $2 $5 Yes
Security E Sell $3 $5 Yes
Security F Sell $4 $5 No
Security G Sell $6 $5 No

In this example,

  • The order amounts for Security A and Security C do not meet the dollar trade threshold, so a buy order was not generated.
  • The order amount for Security B does meet the dollar trade threshold, so a buy order was generated.
  • The order amounts for Security D and Security E do not meet the dollar trade threshold, so a sell order was not generated.
  • The order amount for Security F does not meet the dollar trade threshold, but a sell order is still generated.
  • The Security F order is generated because we generate the minimal buy orders first (in this case, Security A and Security C), and use the total of discarded minimal buy order amounts (in this case $5) to generate minimal sell orders, from smallest to largest, until this amount is offset by minimal sell orders that have been already discarded.

In the example above, we would discard the sell order for Security D first, then the sell order for Security E. At this point the total of discarded minimal buy order amounts is exactly offset by the total of two discarded minimal sell orders. Therefore, we will no longer discard remaining sell orders, even if they do not meet the minimal trade thresholds.

The above example uses the dollar trade threshold for simplicity, but the principles apply to both dollar and percentage trade thresholds.

What is a Standing Letter of Authorization (SLOA)?

A standing letter of authorization - or “SLOA” - is authorization granted by a client to the client’s registered investment adviser to engage in certain activities with respect to the client’s account without needing to request the client’s written consent for each action. SLOAs are most commonly used by clients and their discretionary investment advisors when a client wants to grant the investment advisor the authority to move money into and out of the client’s account on the client’s behalf.

Why are SLOAs that move money into and out of a client’s account an important consideration for registered investment advisors?

SLOAs fall into two categories: (1) SLOAs to move money between one or more accounts all owned by the same client; and (2) SLOAs to move money between a client account and a third party (which generally is referred to as a “third party transfer”). The SEC has interpreted both types of SLOAs in the context of the SEC’s Custody Rule. An investment advisor relying on a SLOA to move money between one or more accounts owned by the same client is not deemed to be a custodian of client assets under the Custody Rule. An investment advisor relying on the second type of SLOA, however, is deemed to have custody of client assets, but is not required to obtain an annual surprise examination if certain conditions are met. Folio Institutional does not accept SLOAs for an investment advisor to transfer money between a client account and a third party.

What is a third party transfer?

Third party transfers on the Folio Institutional platform are defined as transfers of cash or securities between two accounts with different account names or registrations. See the guidelines for transfers between accounts, which are incorporated in the Internal Account Transfer Form, for more information about transfers that are permitted without a notarized letter of instruction for each transfer.

Does Folio Institutional accept SLOA for transfers to third parties?

No. A client must provide a signed, notarized letter of instruction to process a request to transfer money to or from an account with a registration different from that of the client.

If I want to accept a SLOA to transfer money to or from a third party from my client’s account, how does Folio Institutional help me comply with the requirements necessary to avoid the need for an annual surprise examination?

Folio Institutional does not accept SLOAs to transfer money between a client account and a third party account. If you would like to process a request to transfer money to or from an account with a registration other than your client’s account, you will need to provide us with a signed, notarized letter of instruction and supporting documentation. For more detailed instructions, contact our customer service team at support@folioinstitutional.com.