Understanding FLD's Trading Logic
FLD is a hybrid turnkey asset management platform (Hybrid TAMP), combining the automation of a standard TAMP with the flexibility and client-centric approach typically associated with manual trading.
Symplany℠ One is the software program NSRG uses to manage the FLD program. Below is the trading logic used in FLD accounts:
Target models
- Definition: Each account is associated with a target model consisting of a strategy (e.g., Active ETF) and allocation (e.g., Moderately Aggressive 80/20).
- Allocation: The model dictates the percentage allocation for each security and sub-asset class (e.g., mid-cap growth, high-yield bonds, etc.).
- A comprehensive summary of each strategy can be found on the NSRG intranet.
Processing Delay
Due to custodian data sharing schedules, trades are placed one market day after activity occurs in an account.
- For example, if a deposit hits an account on Tuesday, Symplany is notified Wednesday morning. The earliest that Symplany would place a trade is Wednesday.
- If a deposit hits an account on Friday, Symplany is notified Saturday morning. The earliest that Symplany would place a trade is Monday.
Locks and Holds
- Gain Locks: Prevents selling funds with unrealized gains in non-qualified accounts.
- Elective Locks: Allows users to prevent selling funds for any reason in any account.
- Missing Cost Basis: Funds without cost basis will not be traded unless manually unlocked.
Restrictions
- Trade Hold: Suspends automatic trading, can be indefinite or time-bound.
- Short-Term Trade Limits: Fairly common with Vanguard® funds; Symplany will not sell and then buy the same fund in the same account for 30 days.
- Wash Sales: Symplany will not buy a fund and sell it for a loss 30 days before or after the buy in any household account .
- Note: the FLD program is not responsible for trade activity in non-FLD accounts (e.g. a client's 401k or even another non-FLD Spectrum account).
- Minimum Trade Size: Trades are executed for at least $100 when possible.
Rebalancing
- The goal of a Partial Rebalance is to move the account closer to the target model with as little trading as possible. Partial rebalances can be triggered by deposits, withdrawals, or the account being low on sweep.
- A Full Rebalance completely aligns the account, selling off any overweight security and reallocating to the target model.
- During a rebalance, Symplany complies with any locks or restrictions on the account.
Withdrawals
- Most withdrawals perform a Partial Rebalance, selling the most overweight holdings first in order to meet liquidity needs.
- However, if the account will significantly deviate from the target model after a partial withdrawal (i.e. more than 5% off its target), the withdrawal will trigger a Full Rebalance.
Deposits
- Partial Rebalance: Excess cash from deposits is invested in the most underweight holdings first.
Note: Symplany will not place trades if a client's scheduled ACH deposit fails to process. Symplany only calculates a deposit trade when the account has excess sweep.
Drift
- If any sub-asset class drifts more than 5% for over six months (or 10% for two consecutive days) it triggers a Full Rebalance.
Reverse churn
- Accounts are rebalanced if no trades occur for 550 days (~1.5 years).
Dividends and Capital Gains
- Cash from dividends and capital gains remains in the account’s cash sweep and is traded according to the Deposit logic.
Sweep
- Accounts maintain a cash target of 0.7% of the account's total value ($80 minimum). A partial rebalance occurs if cash levels get too high (i.e. $330 above the 0.7% target) or too low (i.e. below 0.3% for two consecutive days).
Approval Requirements
- Trades realizing gains of $1,000 or more in non-qualified accounts require advisor approval.
Trade cutoff
- Trade requests placed before 2:00 PM Central Time will usually be executed on the same day.
- Requests placed between 2:00 PM and 2:45 PM Central Time may be executed the same day on a "best effort" basis.
- Requests placed after 2:45 PM Central Time will be executed on the following market day.