CIBC Foreign Exchange Disclosure Statement
- CIBC As Principal
- Market Making
- Pre-Trade Position and Pre-Hedging
- Order Handling
- Communication Method
- Pricing Factors
- Handling of Electronic Trade Requests, “Last Look” Practice
- Information Handling
Canadian Imperial Bank of Commerce (“CIBC”) is providing clients with this disclosure statement in order to disclose relevant practices of CIBC as it relates to its participation in the wholesale foreign exchange market. CIBC believes that appropriate disclosure promotes the integrity and effective functioning of the wholesale foreign exchange market. Moreover, CIBC is represented on the Canadian Foreign Exchange Committee which is committed to implementing the Bank of International Settlement’s FX Global Code (the “FX Code”). The FX Code is not a legal or regulatory obligation but is a set of acceptable standards of behavior that promotes a robust, fair, liquid, open and appropriately transparent market. CIBC conducts its business in compliance with all applicable laws and supports industry best practices, including those set out in the FX Code. This disclosure statement is not a legally binding agreement, and to the extent this disclosure statement conflicts with any agreement between CIBC and a client, the relevant client agreement will govern.
CIBC enters into foreign exchange transactions with its client (together with other market participants, “counterparties”) in its capacity as principal and for its own account. When CIBC acts in a principal capacity, it acts as an arm’s length party to the transaction and does not act as the counterparty’s agent, fiduciary, financial advisor or in any similar capacity. CIBC does not undertake any of the duties that an entity acting as an agent would perform, unless otherwise explicitly agreed between CIBC and the counterparty. CIBC’s foreign exchange sales and trading personnel and its electronic trading systems do not serve as brokers or agents to a counterparty and accordingly any statements made by, or communicated through, them should not be construed as recommendations or advice. Counterparties are expected to evaluate the appropriateness of any transaction based on the counterparty’s own facts, circumstances, risk tolerances and its assessment of the transaction’s merits.
CIBC acts as a market maker. Accordingly, CIBC may maintain positions for multiple counterparties with competing interests, as well as positions for CIBC’s own interests. As part of its risk management, CIBC may maintain positions as principal in various currencies and other instruments, whether as the result of trades with or orders received from counterparties, as part of its hedging strategy or in advance of reasonably expected near-term demand. Accordingly, in all of CIBC’s communications and transactions with its counterparties relating to foreign exchange trading, including in the handling of requests for firm or indicative quotes, placement and execution of orders and all other expressions of interest that may lead to the execution of transactions, there exists the potential that CIBC’s principal trading and market-making activities may conflict with or diverge from the interests of its counterparties. CIBC’s market making and risk management activities may impact the prices communicated to counterparties for a transaction and the availability of liquidity at levels necessary to execute client orders. These activities may have a market impact that could, among other things, move the market away from a counterparty’s target or order level, trigger stop loss orders, barriers, knock-outs, knock-ins and similar conditions.
CIBC has internal policies, procedures and other controls that identify, mitigate and manage actual and potential conflicts. CIBC in its sole discretion, may decline a transaction in order to manage any actual or potential conflict of interest. Additionally, CIBC has internal policies, procedures and other controls to prevent and detect actual or attempted market misconduct and market manipulation.
When a client indicates an interest in a potential transaction or provides CIBC with a request to enter into a transaction, CIBC may use that information to engage in pre-hedging and hedging activities. This may include entering into transactions prior to executing the client’s potential transaction in order to facilitate the client’s potential transaction. Any transaction entered into by CIBC with a view to facilitating the client’s potential transaction (i) will be entered into by CIBC as principal, not as agent for the client, (ii) could be at different prices from the price at which CIBC executes the client’s transaction, (iii) may affect the market price of or liquidity for the products the client is buying and/or selling and (iv) may result in profit, or loss, to CIBC. At all times, the pre-hedging and hedging activities will be for risk management purposes and execution optimization only and will not be conducted with the intention to adversely affect the client’s potential transaction, although these activities may have such unintended consequences.
When CIBC acknowledges or accepts an order from a client or states that it is willing to “work” an order, CIBC will attempt, but is not committed, to execute the trade subject to the factors outlined below. For greater certainty, neither CIBC’s receipt of an order, nor any indication given that CIBC is working an order creates a contract between the client and CIBC that commits CIBC to execute any or all of the order. Where a client submits an order which is subject to conditions, the fact that any such conditions, including but not limited to market level, are satisfied does not necessarily mean that CIBC will complete the transaction. CIBC’ s decision to complete orders is subject to certain factors, including without limitation, (i) the need to prioritize among other client orders, (ii) the availability of the client’s credit line, (iii) CIBC’s market making and risk managements requirements, and (iv) CIBC’s ability to achieve its expected return on the transaction. CIBC retains discretion as to how to satisfy these competing interests, including with respect to order execution, fill quantity in the case of partial orders, aggregation, priority and pricing. In all cases, CIBC will be fair and reasonable in its consideration of these factors and the prevailing market conditions.
CIBC is dedicated to acting honestly, fairly and professionally when dealing with counterparties and endeavors to ensure that the client receives accurate information regarding the execution of client orders, including stop-loss orders. In that regard, clients should understand that, at the time the order is placed with CIBC, CIBC may be in the market trading alongside the client’s order near the client’s trigger level on a stop-loss order. In such circumstances, CIBC’s transactions may unintentionally impact the reference price and result in the stop-loss order being triggered.
Although CIBC is under no obligation to do so, it may, in its sole discretion, conduct trading activity as a result of having effectively aggregated or “bunched” client orders with orders for other counterparties or orders entered into by CIBC in connection with its market making and risk management activities. Where partial fills are provided for in the order, CIBC may allocate the proceeds among the participating accounts in a manner that it considers appropriate.
CIBC provides clients with the ability to execute foreign exchange transactions over the telephone and/or electronically. Counterparties selecting e-mail or another form of electronic messaging (e.g., chats, instant messages, Bloomberg etc.) as the mode of communicating their foreign exchange orders should understand and accept that these orders, if accepted by CIBC, will only be actioned once the communication is read and acknowledged by the CIBC representative. During the period between the electronic transmission of an order or trade request and the point at which it is verified and acknowledged by CIBC, the client will be exposed to the risk that its order or trade request may not be filled (including where the market has moved in the client’s favour), or may be filled at a less favourable level because market conditions have changed in the interim.
All quotes that a client may receive are an “all-in” indicative price which incorporates mark-ups or other charges over the price or spread at which CIBC traded or may have been able to trade with its other counterparties. Clients may receive different prices for transactions that are the same or similar because CIBC all-in prices and spreads are tailored to individual counterparties and are based on a broad range of standard commercial factors, including size of trade, market conditions, CIBC’s own costs and transactions, overall services provided by CIBC and CIBC’s relationship with the client. CIBC may provide different price quotations by trading platform, venue or communication method, and may change any of its pricing strategies at any time without notice. CIBC is not obligated to disclose the components of its all-in price on any particular transaction, including orders.
Unless explicitly agreed to in writing between CIBC and a client, prices communicated electronically by CIBC’s system do not constitute contractual offers to trade with counterparties. More accurately, these prices are indications of interest and are subject to further review by CIBC should the client wish to trade with CIBC. This review is commonly referred to as “Last Look”. When CIBC uses “Last Look” it is not used for purposes of information gathering with the intention to trade on the client’s offer, rather it is an integral part of CIBC’s risk control mechanism to protect against latency and verify a number of factors as more fully described below.
A client’s electronic trade request constitutes a contractual offer to execute a transaction with CIBC as principal. Upon electronic receipt of a client’s offer to execute a transaction at a price and quantity, whether in response to an indication of interest or otherwise, CIBC’s system will use pre-determined parameters programmed into the system’s trade acceptance logic to review the offer against a variety of pre-trade factors, including without limitation, elapsed time, prevailing market prices, liquidity, inventory, internal filter limits imposed on a client’s electronic trading activities, among other factors. These factors may be changed from time to time without notice to clients and may differ from those applied to other counterparties. As it relates to reviewing prevailing market rates, CIBC employs a “symmetrical” Last Look practice, meaning that CIBC’s system may accept an order notwithstanding that the market has moved up or down within certain pre-determine parameters, but will reject the order if the market has moved outside of those pre-determined parameters.
After CIBC has undertaken this “Last Look” review of the client’s electronic offer, CIBC’s system will immediately communicate its decision to accept or a reject a client’s electronic offer, in whole or in part. Client-specific statistics on rejection ratios are generated by CIBC’s system and are reviewed by sales and trading desk heads on a regular basis to facilitate discussions between CIBC and its counterparties, and to ensure appropriate setting of the parameters in the system’s trade acceptance logic. These statistics are also reviewed by CIBC’s Compliance and Risk Management teams.
CIBC may accept orders from clients to execute transactions based on a rate calculated by a third party based on trading during a specified time of day (commonly referred to as a “Fixing Window”) or at a price determined at a specified time (commonly referred to as a “Reference Time”). CIBC executes such transactions either via third party execution or proprietary algorithm strategy. Risk management activities related to these transactions may lead CIBC to execute hedging transactions before, during or after the Fixing Window or Reference Time. Although such hedging activities, as well as unrelated transactions and other ordinary course of business activities executed by CIBC prior to and during the Fixing Window or Reference Time, or at other times, are not undertaken with the intention of impacting the benchmark fixing or related markets, this activity may have such an unintended effect in certain cases
Protecting the confidentiality and security of counterparty information is important to CIBC. CIBC has policies and controls that are designed to protect a counterparty’s confidential information. However, a counterparty should understand the following:
- CIBC may discuss, and disclose appropriately anonymized and aggregated information regarding client orders (including orders executed in full or in part, cancelled, or expired), indications of interest, quotes, positions as well as any other relevant market information. The foregoing information may constitute part of the “market colour” that CIBC provides to its counterparties.
- All transactions executed by CIBC are analyzed on an individual and aggregate basis for a variety of purposes, including, without limitation, counterparty risk management; sales coverage; quotation levels and transaction pricing and execution; and counterparty relationship management. CIBC maintains a “need to know” standard, which provides that access to counterparty specific information is limited to those employees who have a “need to know” such information to perform their duties and to carry out the purpose for which the information is provided.
- As a regulated entity, CIBC shares counterparty information with, or as requested by, its global regulators.
This document was last updated June 2017 and may be updated from time to time.