Best Execution Policy
(For corporate clients with transactions with the Global Markets Division)

As of January, 2024
Mizuho Securities Co., Ltd.

This Best Execution Policy sets forth the policy on and methods for execution of transactions on terms and conditions that are best for clients pursuant to the provisions of Paragraph 1, Article 40-2 of the Financial Instruments and Exchange Act of Japan (“FIEA”).

Upon acceptance of a client order for securities listed on a financial instruments exchange market (hereinafter “Exchange”) in Japan, we will endeavor to execute the order in accordance with the following policy:

1.Securities Covered by the Policy

“Listed Securities, etc.” including, but not limited to, stocks, bonds with stock acquisition rights, ETFs (beneficiary certificates in exchange traded investment trust funds), and REITs (investment certificates in real estate investment trusts), etc. which are listed on Exchanges in Japan as defined in Article 16-6 of the Financial Instruments and Exchange Law Enforcement Order. We do not handle “Tradable Securities” as defined in Item 4, Article 67-18 of FIEA.

2.Definitions

1. “PTS” refers to a Proprietary Trading System as defined in Paragraph 7, Article 26-2-2 of the Financial Instruments and Exchange Law Enforcement Order.
2. “Dark Pool” refers to an Internal Trading System as defined in Paragraph 7, Article 70-2 of the Cabinet Office Order on Financial Instruments Business. Our Dark Pool matches clients’ sell and buy orders with matching price, volume and other conditions within the range of the best quotes on the auction market of the Tokyo Stock Exchange and executes the matched orders as off-floor transactions on the Tokyo Stock Exchange. 
3. “Trading Venues” refers collectively to Exchanges, PTSs and Dark Pools.
4. “Primary Market” means, in the case where the subject security is listed on multiple Exchanges (i.e. a multiple listing), the exchange for which market price information is displayed first when the security code of the security is entered into a QUICK Corp. terminal at the time of execution. This Exchange is selected on the basis of the highest set-period trading volume according to QUICK Corp.’s computational method.
5. “SOR” stands for “Smart Order Routing” and generally refers to functionality that compares quote information from multiple Trading Venues and controls the routing of orders with the expectation of the best execution price. SOR hereinafter refers to the SOR we provide.
6. “Latency Arbitrage” refers to investment strategies and transactional acts based on them that seek profits by taking advantage of differences in execution conditions, such as prices, between multiple Trading Venues resulting from time differences, including arrival times and processing times (latencies), of orders routed to those Trading Venues. 
7. “IOC” stands for “Immediate Or Cancel” and refers to an order with execution conditions in which all or part of the quantity is immediately executed when the order reaches the trading system of Trading Venue, and any remaining quantity that is not executed is immediately cancelled.
8. “SOR Eligible Issues” means Listed Securities, etc. listed on the Tokyo Stock Exchange, but excludes corporate bond certificates with stock acquisition rights, stock acquisition rights certificates and investment equity stock acquisition rights certificates, as well as securities set forth in Item 17, Paragraph 1, Article 2 of FIEA. 

 

3.Methods for Executing Transactions on the Best Terms and Conditions

Execution of trades in SOR Eligible Issues using the SOR function is possible upon Client’s instruction.

1. Where there is no instruction
   To the extent there are no instructions on trade execution method from the client (including instructions to use the SOR function), we will execute orders for Listed Securities, etc., as follows:
   1. If we receive an agency order from a client (“Agency Order”), we will promptly forward such order to an Exchange in Japan where the ordered security is listed. Agency Orders received outside of the order acceptance hours of the Exchange will be placed on an Exchange after order acceptance hours on the Exchange have resumed.
   2. For the purpose of (i), Agency Orders will be forwarded to Exchanges in the following manner.
      1. If the relevant security is listed on only one Exchange (single listing), we will forward the order to that Exchange.
      2. If the security is listed on multiple Exchanges (multiple listings), we will forward the order to the Primary Market. Please contact our head office or branches for inquiries regarding Primary Markets.
2. Where the client instructs us to use SOR
   With regards to SOR Eligible Issues where we are instructed to use SOR, we will execute Agency Order for Listed Securities, etc., as follows:
   1. From among the Trading Venues targeted by SOR, we will forward the Agency Order to that selected by SOR as the Trading Venue where the most favorable price execution result can be expected in accordance with the conditions specified by clients. SOR seeks execution at the most favorable price, but this result is not guaranteed.
   2. The Trading Venues to which SOR orders may be forwarded are the Dark Pool we operate, J-Market, a PTS operated by Japan Next Securities Co., Ltd., Cboe Alpha, a PTS operated by Cboe Japan Limited and the Tokyo Stock Exchange auction market. Trading Venues as designated in advance by the Client for exclusion will be excluded from the SOR order forwarding destinations.
   3. SOR compares the best quote prices of multiple Trading Venues and automatically selects the Trading Venue where the most favorable price execution is expected. SOR’s selecting function is applicable during Tokyo Stock Exchange trading hours. If a certain issue of securities is not handled or cannot be traded on a Trading Venue, such Trading Venue is excluded from the SOR forwarding destinations. If the quantity of the best quote on a single Trading Venue is less than the order quantity to be executed, the order is split and forwarded to multiple Trading Venues where execution is possible.
   4. If the best quote price is the same for multiple Trading Venues, the order will be forwarded according to the following order of priority: our Dark Pool, the Japan Next Securities PTS, the Cboe Japan PTS and the auction market of the Tokyo Stock Exchange; provided, however, that this order of priority may be changed depending on future circumstances.
   5. Policies and measures for dealing with Latency Arbitrage
      In the case of execution via SOR, orders are sent to PTSs and the Tokyo Stock Exchange simultaneously to prevent Latency Arbitrage to the greatest extent possible. In addition, such orders are placed as IOC on all Trading Venues except for the Tokyo Stock Exchange.

 

4.Reasons for Selecting the Applicable Execution Method

1. Where SOR is not used
   For Listed Securities, etc. we believe the most rational choice for our clients is to execute orders on Exchanges because trading on exchanges is superior to off-Exchange transactions in terms of liquidity, likelihood of execution, trading speed, etc. as Exchanges tend to have a high concentration of investor demand.
   Furthermore, regarding securities listed on multiple Exchanges, we believe the most rational choice is for our clients to execute orders on the Exchange with the highest liquidity.
2. Where SOR is used
   1. We believe that for executing transactions on the best terms and conditions it is most reasonable to compare the quotes on multiple Trading Venues and select the Trading Venue where the order is expected to be executed at the most favorable price.
   2. The Trading Venues targeted by SOR are selected from the perspective of potential price improvement and liquidity, for executing transactions at the most favorable price.
   3. Because we believe that execution in our Dark Pool can reduce market impact because quote information is not disseminated externally, we have adopted our Dark Pool as a forwarding destination for SOR.
   4. Because we judge that the liquidity is insufficient, we do not include in the SOR comparison quotes from the other Exchanges for Tokyo Stock Exchange listed securities with multiple listings.
   5. When the best quoted price is the same for multiple Trading Venues, our Dark Pool is given priority, followed by PTSs as we believe that execution in our Dark Pool reduces the market impact while ensuring the possibility of execution at the most favorable price. The order priority between PTSs is determined in consideration of the possibility of conclusion of trades.
   6. We believe it is reasonable to exclude securities listed only in Exchanges other than the Tokyo Stock Exchange from the subjects of SOR because of limited liquidity.
   7. Similarly, we believe that it is reasonable to exclude corporate bond certificates with stock acquisition rights, stock acquisition rights certificates and investment equity stock acquisition rights certificates, and securities set forth in Item 17, Paragraph 1, Article 2 of FIEA from subject of SOR because their liquidity is limited, and they are not handled by PTSs.
   8. Reasons for our policies and measures against Latency Arbitrage
      With regard to the response to Latency Arbitrage, we take the above-mentioned measures because we believe that the possibility of interference by Latency Arbitrage can be reduced by avoiding both the arrival of divided orders at different times at PTSs and the Tokyo Stock Exchange auction market, where quote information is disclosed, and the accumulation of unexecuted orders for a certain time after arrival at Trading Venues other than the Tokyo Stock Exchange, where liquidity is generally limited. 

 

5.Other

1. Notwithstanding the methods provided in section 3 above, we will execute each of the following types of transactions in the applicable manner described below:
   1. Custom-made transactions in which client specifies or agrees with us, in advance or at the time of the order, on the execution method (including a request for us to act as the direct counterparty, a request for the order to be executed on a specific Exchange, a request for specified Trading Venues such as a PTS or Dark Pool, a request for execution during certain trading hours or the need for the execution of orders in a single lot):
      We will execute as instructed or agreed.
   2. Execution under an investment management agreement, etc.:
      Under such agreements, execution shall be conducted by a method of our choice within the range of discretion granted by the client.
   3. Transactions for which the execution method is specified in our terms of business, etc.:
      We will execute as specified.
   4. Transactions of shares of less than one trading unit:
      We will forward the transaction to a financial instruments broker that handles shares of less than one trading unit or trade with client as direct counterparty.
   5. For margin transaction orders, since execution in the Dark Pool is not permitted due to rules of the Tokyo Stock Exchange and we do not handle orders for margin transactions to be executed on a PTS, we will forward the order to an Exchange on which the issue is listed (to the Primary Market in the case of a multiple listing) instead of applying SOR even if the relevant issue is an SOR Eligible Issue.
   6. Sell orders for foreign securities that are listed on both domestic (Japan) and overseas Exchanges and that are in the custody of a foreign custodian, etc. will be executed on overseas Exchanges.
   7. In the case where we forward an order to a Trading Venue during the order acceptance hours before the opening of the Tokyo Stock Exchange auction market trading hours, we will forward the order only to the Tokyo Stock Exchange auction market instead of applying SOR even if the relevant issue is an SOR Eligible Issue. SOR is used for execution after opening of auction market trading hours; provided, however, that SOR is not used for orders to be executed in the opening or closing auction and we will forward all such orders to the Tokyo Stock Exchange.
2. There may be cases where, due to system failure or other reasons, we have no alternative but to execute an order using a method other than the method selected pursuant to the Best Execution Policy. In such cases, we will endeavor to execute on the best terms possible at the time of execution. In addition, if it becomes difficult for SOR to obtain quote information for an order subject to SOR or to forward an order to Trading Venues due to a system failure at a Trading Venue or other external entity or of ours, SOR may be suspended or the SOR forwarding destinations may be limited.

This Best Execution Policy applies to orders received by us after January 1, 2024. However, for existing clients with prior instruction or agreement on the execution method before December 31, 2023, the execution method will continue after January 1, 2024.