LYXOR'S BEST EXECUTION POLICY
This document contains information on the best execution policy of Lyxor Asset Management and
Lyxor International Asset Management (together "Lyxor").
1. Context
The European Financial Instruments Market Directive 2004/39/EC dated 21 April 2004 (herein
after named MIF Directive), which came into effect on 1 November 2007, institutes common
investor protection standards and consolidates the rules of good conduct applicable to financial
intermediaries.
The obligation of best execution of orders makes up a crucial component of the MIF Directive.
Lyxor complies with this obligation through the implementation of this policy intended to achieve
the best possible result for its clients when executing their orders and given the various criteria
mentioned herein below.
Among these criteria, apart from the order execution price, Lyxor takes into account the total
transaction cost, speed of execution, probability of execution and payment as well as criteria that
can be more specific depending on the type of financial instruments concerned. In particular, insofar
as financial futures are concerned, an important criterion consists in the ability to understand the
requirement and develop a tailor-made solution.
In order to comply with the new provisions of the MIF Directive, Lyxor has drawn up a best
execution policy for orders for the following situations:
 when orders are sent to a service provider for execution under Lyxor's authority according to
the modalities defined with the clients;
 when orders are sent to a service provider for execution on behalf of the client.
Lyxor does not execute orders directly. Lyxor always sends them to a service provider for
execution.
The purpose of this document is therefore to inform the clients about the system in force with regard
to the best order execution.
2. Scope of application
This policy has been drawn up in favour of Lyxor's non-professional and profession clients. It is not
intended for being applied in favour of eligible counterparts.
This policy is applicable to clients who are UCITS managed by Lyxor. It is not applicable to the
UCITS whose financial management has been delegated by Lyxor. In particular, it is not applicable
to the Lyxor platform's alternative management funds, whose financial management is delegated to
Trading Advisors. It is applicable to the UCITS managed by Lyxor by delegation, subject to the
specific instructions or orders that can be given to it by the manager of the UCITS or by the board
of directors of the UCITS. This policy is also subordinated to special instructions given to Lyxor by
the prospectus of the UCITS as well.
3. Scope of the financial instruments concerned
Financial Instruments Class
Actions
ETF
Comments
Orders sent through brokers, regulated
markets concentrating most of the liquidity in
spite of the MIF directive doing away with
their monopoly; the market share of platforms
and systematic internalisers is called to grow
Orders sent to brokers for execution,
regulated markets concentrating most of the
liquidity as of now. In some situations,
liquidity is sought through the intermediary
of brokers from market makers
Liquidity provided over-the-counter by
market makers in a highly competitive
context, the prices changing mainly
depending on the futures markets
Government Bonds and treasury Bonds
(European Economic Space States and
Swiss Confederation, United States, Japan,
Canada, Australia and other developed
countries)
Government Bonds (emerging markets)
Lesser liabilities and liquidity, debt made out
in local or foreign currency, considerable
volatility, lesser number of liquidity sources
(over-the-counter market makers)
Real estate bonds or similar (“Covered Liquidity provided over-the-counter by
Bonds”), debt issued by supranational market makers, high quality of credit, prices
institutions, public bodies or regions
changing mainly depending on Government
bonds and swap spread
“Investment grade” private bonds
Minimum liability of EUR 500 million (or
equivalent) for the reference securities, good
over-the-counter liquidity provided on these
securities by market makers for standard sizes
(EUR 5 million or equivalent), prices
changing mainly depending on Government
bonds, swap spread and issuer's credit
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High-yield private bonds
Convertible or exchangeable bonds
Securitisations
CDOs)
of
all
types
(including
Other bonds
Deposit Certificates, Commercial paper and
other short-term securities
Foreign Exchange (Spot,
Currency Swaps & Options)
Futures
and
Futures contracts listed on a regulated
market
on
all
underlyings
(share
benchmarks, bond holder packages, interest
rate, currencies… )
Options listed on a regulated market on all
underlyings (share benchmarks, bond holder
packages, interest rate, currencies… )
Credit derivatives ( "single names", indices
or segments)
Often very small security liabilities (EUR
100/150 million or equivalent), reduced
liquidity in spite of the over-the-counter
market makers' action, sometimes tricky
search for sources of liquidity, prices
changing mainly depending on news related
to the issuer or its sector of activity
Highly reduced liabilities (synthetic bonds) to
significant (EUR 500 million equivalent or
more), proper over-the-counter liquidity
provided by a small group of market makers,
prices changing mainly depending on interest
rates, issuer's credit, the underlying action
and its volatility
Variable liability as per the seniority rank but
often extremely reduced for more junior
segments (< 50 million), an in-depth analysis
of the structure indispensable prior to
investment, the rank leader is often the only
potential source of liquidity
Tailor-made structures often including
optional components, search for price and
liquidity most often tricky
Exclusively
over-the-counter
market,
liquidity provided by brokers and market
makers
Exclusively over-the-counter market (market
makers), excellent liquidity on major
currencies but much more limited on certain
emerging currencies, transactions involving
counterpart risk
Good to excellent liquidity most of the time,
orders sent through brokers
Liquidity sought by brokers from market
makers, off-market agreement on transaction
details but confirmed on the market
Excellent liquidity for the indices, good for
the "investment grade" names, limited for
non-standard names or maturities; over-thecounter transactions involving counterpart
risk in face of the market makers
Classic OTC futures financial instruments Liquidity provided by market makers, over(Rate Swaps, Caps, Floors, Swaptions…)
the-counter
transactions
involving
counterpart risk
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Other OTC futures financial instruments
(performance or variance swaps, exotic
products …)
temporary transfers and deposits (all legal
frameworks)
Tailor-made solutions after a phase of indepth dialogue / advice, involving counterpart
risk
Solutions for optimisation of securities or
cash position, collateralised or not, involving
counterpart risk
4. Definition of the best execution policy
As the orders are placed/sent to a service provider for execution, either Lyxor shall itself determine
the best place for execution and inform the service provider thereof, or Lyxor ensures that the latter
has adequate means to meet the obligation of getting the best possible result for the client.
Lyxor shall select the intermediaries for executing its orders, or those of its clients, in accordance
with article 314-751 of the general AMF regulation.
The Risk and Internal Control Department of LYXOR ASSET MANAGEMENT shall define and
update a list of criteria with regard to counterparts in order to select and evaluate the counterparts
that LYXOR ASSET MANAGEMENT is authorised to deal with.
A counterparts selection committee in which the management team, the RCCI in charge of
Conformity, the RCCI in charge of Internal Control, the Operations department and the Risk
department of LYXOR ASSET MANAGEMENT participate shall monitor the quality and
conformity of the selection. The rating grid is then updated. When a manager wants to deal with a
new counterpart who is not yet in the list of authorised counterparts, he must schedule an
exceptional committee, after having gathered all the information on the transaction conditions.
The committee studies the legitimacy of this request and then decide to whether authorise or not
authorise this counterpart.
It may be noted that the inclusion or exclusion of a counterpart in or from the list of authorised
counterparts stands valid for all the LYXOR entities. In this context, the legal department is in
charge of contracting with the new counterpart.
As of today, Lyxor mainly uses Societe Generale (Paris) as the service provider for executing its
orders, or those of its clients, including for OTC futures financial instruments. The conditions
offered by Societe Generale are subjected to verification of its competitiveness as compared to the
services offered by competitors at least on a yearly basis, or on the occasion of calls for tenders.
Furthermore, Lyxor can ask Societe Generale to contractually undertake, for certain UCITS or
mandates, to take all reasonable measures to get the best possible result for Lyxor or its clients and
UCITS, during execution of orders, in accordance with article L. 533-18 of the monetary and
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V. - The investment service provider shall draw up and implement a policy that will enable it to comply with the obligation mentioned in
IV. For each class of instruments, this policy selects the entities to which orders are sent for execution. The entities selected thus should
have order execution mechanisms which enable the investment service provider to comply with its obligations in accordance with this
article when it sends orders to this entity for execution. The investment service provider provides its clients or holders or shareholders of
the UCITS managed by it with appropriate information on the policy finalised by it in application of this paragraph. For the UCITS, this
information is included in the management report.
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financial code.
Societe Generale is selected for the following transactions in a privileged manner:
 When Societe Generale is the guarantor of the fund. For these funds, the guarantor bears the
entire risk for default by the fund counterpart, a risk that it can refuse to bear or the increase
of the guarantee cost of which will push up the price of the transaction with counterparts
other than Societe Generale.
 When the Lyxor fund is exclusively underlying of a structured product issued by Societe
Generale and is therefore held for a 100% by Societe Generale. In this case, Societe
Generale does not wish to bear a counterpart risk or make the client bear costs linked to the
risk of default by the counterpart whereas the client already holds a Societe Generale
counterpart risk through the holding of the structured product.
 When the Lyxor fund replicates or invests in one of the legacy strategies sponsored by
Societe Generale. In this case, as the Societe Generale does not wish to reveal the
calculation methodologies of legacy strategies outside the group, it is not possible to find
more efficient counterparts than Societe Generale.
 When the fund is distributed by Societe Generale's market strength with its clients or subdistributors. In this case, the fact that Societe Generale is not only involved in the fund as a
counterpart but also as a distributor enables LYXOR to favour this counterpart as it is
reassured about long-term continuation of maintenance of high quality services.
However, for all these cases, the fact that LYXOR favours Societe Generale does not imply that it
will not carry out any control on the execution of the transactions made. In fact, prior to each
transaction or each calculation of the net asset value, LYXOR will compare the price proposed by
the counterpart with its own independent valuation.
In case of difference in valuation higher than the tolerance threshold, LYXOR will proceed with a
call for tenders.
Insofar as formula funds are concerned, Lyxor can also base itself on the investor or the distributor's
own ability to select the formula, and then process the formula.
When a UCITS managed by Lyxor benefits from advice given by an investment consultant, Lyxor
can also base itself on his selecting ability. When such a case comes up, Lyxor can also base itself
on the selecting capability of the professional investor on whose behalf Lyxor is managing a
UCITS.
Lyxor can also seek recourse to the services of other service providers, especially for the execution
of orders on OTC futures financial instruments.
Lyxor can also select the counterpart of an OTC futures financial instrument by making several
counterparts compete with one another.
Particularly for the purpose of operational simplicity, in case Lyxor is dealing with an OTC futures
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financial instrument with a counterpart other than Societe Generale, Lyxor shall use the services of
Societe Generale on a "back to back" basis. Lyxor shall then finalise the transaction with Societe
Generale, and Societe Generale shall finalise a similar transaction with the counterpart chosen by
Lyxor, as per the conditions determined by Lyxor.
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