FAQs - Equity Brokerage Questionnaire
- Who is eligible?
- How do we submit our information?
- Where do firms enter the program?
- When will we know if we have been selected for advancement?
- How often will brokers be added and on what basis?
- What can I do to improve my firm's chances?
- Should I include value-added capabilities that we are developing but have not yet made available to clients?
- We have a joint venture/arrangement with another firm – does this help or hinder us from being included?
- What volume guarantees do we get once we are in the Core pool or in the Development pool?
- How will we know when we move from Development to Core?
- How will we know when we are at risk of being moved out of Core?
- Once we are selected for the Development pool are we guaranteed to be moved to the Core pool?
- How will we know where the process stands?
- How will the results of the process be communicated to us?
Any brokerage firm with an equity trading capability that is in good standing with regulators and completes the questionnaire will be considered.
Mosaic, CalPERS contractor for this project, has established a secure link to the questionnaire. While it is possible to submit responses via fax or mail, using direct electronic input eliminates the possibility of error.
All firms are initially placed in the broker queue. The progression from the queue is first to a Development Pool and then to Core broker status, however there is no guarantee or commitment by CalPERS that any particular firm will advance from the broker queue. Brokers are selected based on the needs of CalPERS.
You will be contacted by CalPERS Internal Trading staff when your firm has been added to the Development Pool. Ongoing dialogue between the Internal Trading staff and your firm will be an important component to the business relationship.
It is anticipated that the Core Broker pool will be reviewed semi-annually to select out brokers whose execution quality, operational capabilities and value added has lagged and to advance brokers from the Development Pool into Core Broker status. We anticipate that brokers will be added to the Development Pool to replace brokers who become Core Brokers; however CalPERS reserves the right to add development brokers for other reasons. CalPERS may choose to review Core Brokers more or less frequently than semi-annually; this interval will depend, in part, on the level of trading activity.
The principal way to increase the chance of being selected is by demonstrating through questionnaire responses how your firm brings value to CalPERS.
Should I include value-added capabilities that we are developing but have not yet made available to clients?
If you anticipate that these capabilities will be available to clients within a reasonable period (approx. three months) after the submission date then they should be included. Firms that do this should also plan to keep Mosaic informed about any changes in the capability timetable and availability.
We have a joint venture/arrangement with another firm – does this help or hinder us from being included?
While we want to be inclusive, joint venture and other kinds of multi-firm arrangements such as "step-outs" are generally considered to be non value-added, uncompetitive business models. As such, firms that are not directly involved in the execution (introducing broker arrangements, etc.) will not be included.
There is no per se guarantee; however, as stated earlier, there is a commitment to have a meaningful financial relationship with each Core Broker.
The migration from Development to Core will addressed as part of the ongoing dialogue present in building a mutually beneficial relationship. We would expect that trading volume will increase before the formal change in status.
CalPERS will communicate directly with your firm about any concerns over performance. While we would anticipate that most brokers would promptly address the issue, we recognize that there are legitimate reasons (e.g., departure of key personnel, change in ownership, etc.) that may impact performance. In these situations brokers should expect to receive proportionately fewer trades and loss of Core Broker status as soon as practical.
CalPERS may also choose to move out of the Core pool any broker who becomes a chronic performance/operational/value-added laggard even though the issue is addressed every time it is raised. CalPERS expects its brokers to always "bring their best" to the relationship, and the key criteria is the counterparty's aggregate score (based on execution quality, operational capability and value-added) relative to their peers.
No. The normal progression is from Development to Core. However there are no guarantees. Due to the need to reduce the overall number of brokers in the pool, in order for one to move into Core from Development, another must be dropped from Core. The purpose of the Development pool is to gain further experience with a broker to assess their capabilities. Upon such assessment, they will either be moved to Core status or will be moved out of the program, depending upon results. Should CalPERS find that a broker who gains Development status is not able to compete and/or provide the value that was represented in their questionnaire response, CalPERS can choose to provide the appropriate feedback and return this broker to Queue status.
Mosaic is charged with providing feedback to brokers who have yet to progress to Development status.
Mosaic will communicate results to broker firms and also offer guidance if your firm needs improvement in particular areas.