Vanguard Transaction Principles (SAI Disclosure)

From Bogleheads

The advisor decides which securities to buy and sell on behalf of a Fund and then selects the brokers or dealers that will execute the trades on an agency basis ^[1] or the dealers with whom the trades will be effected on a principal basis. ^[2] For each trade, the advisor must select a broker-dealer that it believes will provide "best execution." ^[3] Best execution does not necessarily mean paying the lowest spread or commission rate available. In seeking best execution, the SEC has said that an advisor should consider the full range of a broker-dealer's services. The factors considered by the advisor in seeking best execution include, but are not limited to, the broker-dealer's execution capability, clearance and settlement services, commission rate, trading expertise, willingness and ability to commit capital, ability to provide anonymity, financial responsibility, reputation and integrity, responsiveness, access to underwritten offerings and secondary markets, and access to company management, as well as the value of any research provided by the broker-dealer. In assessing which broker-dealer can provide best execution for a particular trade, the advisor also may consider the timing and size of the order and available liquidity and current market conditions. Subject to applicable legal requirements, the advisor may select a broker based partly on brokerage or research services provided to the advisor and its clients, including the Funds. The advisor may cause a Fund to pay a higher commission than other brokers would charge if the advisor determines in good faith that the amount of the commission is reasonable in relation to the value of services provided. An advisor also may receive brokerage or research services from broker-dealers that are provided at no charge in recognition of the volume of trades directed to the broker. To the extent research services or products may be a factor in selecting brokers, services and products may include written research reports analyzing performance or securities, discussions with research analysts, meetings with corporate executives to obtain oral reports on company performance, market data, and other products and services that will assist the advisor in its investment decision-making process. The research services provided by brokers through which a Fund effects securities transactions may be used by the advisor in servicing all of its accounts, and some of the services may not be used by the advisor in connection with the Fund. ^[4]

Notes

1. ↑ Agency Trade refers to a transaction involving the payment of a commission.
2. ↑ Principal Trade refers to a transaction involving a “discount” or a “spread."
3. ↑ Best Execution refers to executing Client transactions so that the Client’s total cost is the most favorable under the particular circumstances at that time.
4. ↑ Client-Directed Brokerage Arrangement refers to an arrangement whereby a Client directs that trades for its account be executed through a specific Broker in exchange for which the Client receives a benefit in addition to execution services. Client-Directed Brokerage Arrangements include rebates, commission banking, and commission recapture programs through which the Broker provides the Client with cash or services or pays certain obligations of the Client. A Client may also direct the use of limited lists of brokers—not for the purpose of reducing Brokerage costs but to effect various other goals (e.g., increased diversity by using minority-owned brokers) or geographical concentration. Soft Dollar Arrangement refers to an arrangement whereby the Investment Manager directs transactions to a Broker, in exchange for which the Broker provides Brokerage and Research Services to the Investment Manager. Soft Dollar Arrangements include Proprietary and Third-Party Research Arrangements but do not include Client-Directed Brokerage Arrangements. Note Source: CFA Institute Soft Dollar Standards

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