# Research and Soft Dollar Policy: [Firm name]

> Written policy for how an investment manager obtains and pays for investment research and brokerage services, and how it uses client
> commissions. The US part is based on the Section 28(e) safe harbour of the Securities Exchange Act of 1934 (15 U.S.C. 78bb(e)), the SEC
> interpretive release on client commission practices (Release 34-54165, July 2006), the adviser's fiduciary duty and the soft dollar
> disclosure in Form ADV Part 2A Item 12. The EU part covers MiFID II (Directive 2014/65/EU Article 24(7) to (9a), as amended by the Listing Act
> Directive (EU) 2024/2811) and Article 13 of Commission Delegated Directive (EU) 2017/593 as amended by Delegated Directive (EU) 2026/374. UK
> rules are cited by reference only. The example firms, Kestrel Bay Capital and Kestrel Bay Capital Europe, are fictional. Replace every
> `[bracketed]` value and every row marked *Example*. Obtain the law and guidance for the normative text. This is a document format, not legal,
> compliance, investment or tax advice.

<!--
Guidance: How to use this template
- Decide the payment model per entity first (section 3). A US adviser can use client commissions within Section 28(e); an EU investment firm
  providing portfolio management or independent advice must pay for research from its own resources, from a research payment account funded
  by a separate client charge, or jointly with execution under the conditions introduced by the Listing Act as transposed nationally. One
  group can run different models, and the policy must say which accounts pay for what.
- Best execution comes first. Research must never be the reason a client trade goes to a broker that cannot give best execution. Keep this
  policy consistent with the Best Execution Policy (`compliance/best-execution-policy`).
- Every product bought with client money needs an eligibility decision on file (Annex A) and, for mixed-use products, an allocation record.
- Related documents: Form ADV Part 2A Brochure (`compliance/form-adv-part-2a-brochure`, Item 12.A.1 discloses these practices), Conflicts of
  Interest Register (`compliance/conflicts-of-interest-register`), Code of Ethics (`compliance/investment-adviser-code-of-ethics`, gifts and
  entertainment from brokers), Annual Compliance Review (`compliance/annual-compliance-review`), Equity Research Report
  (`finance/equity-research-report`) for firms that also publish research.
- Common pitfall: treating the research budget as a finance matter only. Regulators look at whether research was valued, used and paid for
  fairly across clients, and whether trading volume was steered to pay for it.
-->

## Document control

<!-- Guidance: This is a controlled policy approved by senior management; for a registered fund, report it to the fund board as part of brokerage oversight. Record which entities and client types it covers. -->

| Field | Value |
|---|---|
| Document ID | [POL-RSD-001] |
| Entities covered | [Kestrel Bay Capital LLC (SEC-registered adviser); Kestrel Bay Capital Europe (MiFID investment firm)] *(Example)* |
| Asset classes covered | [Listed equities, fixed income, listed derivatives, FX] |
| Research payment models in use | [US: client commissions under Section 28(e) through commission sharing arrangements; EU: own resources] *(Example)* |
| Version | [1.0] |
| Status | [Draft / In review / Approved / Superseded] |
| Owner | [@chief-compliance-officer] |
| Approvers/reviewers | [@managing-partner], [@chief-investment-officer], [@head-of-trading], [@chief-financial-officer], [@eu-compliance-officer] |
| Effective date | YYYY-MM-DD |
| Last updated | YYYY-MM-DD |
| Next scheduled review | YYYY-MM-DD (at least annually, and on any change in law or payment model) |
| Classification | [Internal] |
| Retention | Policy versions and all records in section 13 kept for [at least five years] (US Rule 204-2; EU and national record-keeping rules) |

### Approvals

| Role | Name | Decision | Date |
|---|---|---|---|
| Chief Compliance Officer | [@name] | [Recommend] | YYYY-MM-DD |
| Managing Partner (US adviser) | [@name] | [Approve] | YYYY-MM-DD |
| Management body, Kestrel Bay Capital Europe *(Example)* | [@name] | [Approve EU sections] | YYYY-MM-DD |
| Fund board (registered funds only) | [@name] | [Noted] | YYYY-MM-DD |

### Revision history

| Version | Date | Author | Change |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [@author] | Initial draft |
| 1.0 | YYYY-MM-DD | [@author] | Approved; EU section updated for the Listing Act and Delegated Directive (EU) 2026/374 |

## Contents

- [1. Purpose and scope](#1-purpose-and-scope) · [2. Governance and responsibilities](#2-governance-and-responsibilities) ·
  [3. Payment models by entity](#3-payment-models-by-entity) · [4. US framework: Section 28(e) safe harbour](#4-us-framework-section-28e-safe-harbour)
- [5. Eligibility decisions and mixed-use allocation](#5-eligibility-decisions-and-mixed-use-allocation) ·
  [6. Research budget, broker vote and commission sharing](#6-research-budget-broker-vote-and-commission-sharing) ·
  [7. EU framework: MiFID II research rules](#7-eu-framework-mifid-ii-research-rules) · [8. UK framework](#8-uk-framework)
- [9. Research quality assessment](#9-research-quality-assessment) · [10. Conflicts of interest and controls](#10-conflicts-of-interest-and-controls) ·
  [11. Client disclosure and reporting](#11-client-disclosure-and-reporting) · [12. Monitoring and testing](#12-monitoring-and-testing)
- [13. Records](#13-records) · [14. Breaches and exceptions](#14-breaches-and-exceptions) ·
  [Annex A. Product eligibility request](#annex-a-product-eligibility-request) · [Annex B. Traceability matrix](#annex-b-traceability-matrix) ·
  [Glossary and references](#glossary-and-references) · [Standard and licence note](#standard-and-licence-note)

## 1. Purpose and scope

<!-- Guidance: State what the policy covers: third-party and broker research, corporate access, market data, trading tools and any other product or service obtained in connection with client trades or paid with client money. Questions: which entities, clients, funds and asset classes? Which trades generate commissions that can pay for research? Pitfall: forgetting fixed income and FX, where research costs are often embedded in spreads. -->

This policy sets how [Firm name] (the "Firm") obtains investment research and brokerage services, how it pays for them, and how it protects
clients when client commissions or client charges are used. It applies to all portfolio managers, analysts, traders and staff who request,
use, approve or pay for research, and to every client account and fund the Firm manages.

The policy has four aims:

1. Client trades are always placed to achieve best execution. Research is never a reason to accept worse execution.
2. Client money pays only for products and services that help the Firm make investment decisions or execute trades for those clients, and
   only within the limits of the law that applies to the entity and the client.
3. The cost of research is fair between clients and is disclosed clearly.
4. The Firm can show, from records, how every research payment was decided, valued and allocated.

| Scope item | Covered | Notes |
|---|---|---|
| Third-party (independent) research *(Example)* | Yes | Paid through commission sharing arrangements (US) or own resources (EU) |
| Broker proprietary research *(Example)* | Yes | Valued through the broker vote |
| Corporate access and expert networks *(Example)* | Yes | US: assessed for eligibility case by case; EU: paid by the firm, not treated as research |
| Market data and analytics *(Example)* | Yes | Often mixed use; see section 5 |
| Fixed income and FX trading *(Example)* | Yes | No research paid from spreads or markups; research for these desks paid by the Firm |
| Free trials and minor non-monetary benefits *(Example)* | Yes | Limits in section 7.3 and the code of ethics |

## 2. Governance and responsibilities

<!-- Guidance: Name the committee that approves budgets, the broker vote and eligibility decisions, and separate the people who consume research from the people who approve payment. Pitfall: portfolio managers approving payments for research they personally favour without any second review. -->

| Role | Responsibilities | Accountable to |
|---|---|---|
| Research Committee *(Example: CIO chair, two portfolio managers, head of trading, CCO non-voting)* | Approves research budgets, broker vote results, eligibility of new products, mixed-use allocations; meets quarterly | Managing Partner |
| Best Execution Committee | Reviews execution quality and confirms research does not affect broker selection; meets quarterly | Managing Partner |
| Head of Trading | Places trades; keeps execution and research commission components separate; reconciles CSA balances | Best Execution Committee |
| Chief Compliance Officer | Owns this policy; tests controls; reviews disclosure; keeps eligibility records | Managing Partner, fund board |
| Chief Financial Officer | Pays research invoices from CSA balances or own resources; tracks the EU research budget | Managing Partner |
| Analysts and portfolio managers | Request products using Annex A; take part in the broker vote and quality assessment; record research use | Research Committee |
| EU Compliance Officer, Kestrel Bay Capital Europe *(Example)* | Applies section 7; confirms national transposition; reports to the EU management body | EU management body |

```mermaid
flowchart TD
  REQ["Analyst requests a product (Annex A)"] --> ENT{"Which entity and clients will use it?"}
  ENT -->|"US adviser accounts"| ELIG{"Eligible research or brokerage under Section 28(e)?"}
  ENT -->|"EU investment firm"| EU["Section 7: own resources, RPA or joint payment as adopted"]
  ELIG -->|"No"| HARD["Firm pays from own resources (hard dollars)"]
  ELIG -->|"Mixed use"| MIX["Allocate: eligible share by commissions, rest by Firm"]
  ELIG -->|"Yes"| GOOD["Good-faith reasonableness determination"]
  MIX --> GOOD
  GOOD --> BUD{"Within approved research budget?"}
  BUD -->|"Yes"| PAY["Pay via commission sharing arrangement; record"]
  BUD -->|"No"| COM["Research Committee decision"]
  COM --> PAY
  PAY --> REV["Annual quality assessment and disclosure in Form ADV Item 12"]
  EU --> REV
```

## 3. Payment models by entity

<!-- Guidance: Record the model each entity uses and why. Options in practice: (a) firm pays from its own resources; (b) client commissions within Section 28(e) (US); (c) EU research payment account funded by a separate research charge with a budget; (d) EU or UK joint payment for execution and research under the conditions in force after the Listing Act or the UK rules. Pitfall: an EU and a US entity sharing research while one pays with client money and the other with its own, without any cost allocation between them. -->

| Entity | Clients | Model | Basis | Decision date |
|---|---|---|---|---|
| Kestrel Bay Capital LLC *(Example)* | US equity separate accounts and the Global Opportunities Fund (the accounts whose equity trades generate commissions) | Client commissions within Section 28(e), through commission sharing arrangements with three executing brokers; non-eligible items paid by the Firm | Section 28(e); Release 34-54165 | YYYY-MM-DD |
| Kestrel Bay Capital Europe *(Example)* | EU discretionary mandates | Own resources (research cost borne by the firm) | MiFID II Art. 24(8) and (9a); Delegated Directive 2017/593 Art. 13 as amended | YYYY-MM-DD |
| [Entity] | [Clients] | [Model] | [Basis] | YYYY-MM-DD |

*Example:* Kestrel Bay Capital Europe uses research produced by Kestrel Bay Capital's analysts and some third-party research licensed by the
US adviser. The EU entity pays the US adviser an annual research recharge of EUR [amount], set by the Finance team using analyst time spent on
EU mandates, so that EU clients do not benefit from research paid with US client commissions without a matching payment. The EU management body
reviewed the joint payment option in 2026 and decided to keep paying from own resources; the reasons are recorded in section 7.4.

## 4. US framework: Section 28(e) safe harbour

<!-- Guidance: Section 28(e) protects a person exercising investment discretion from a claim that it breached its fiduciary duty solely because it paid a commission above the lowest available rate, if it determined in good faith that the commission was reasonable in relation to the value of brokerage and research services provided. The 2006 SEC release sets out how to apply it. The safe harbour covers agency transactions and certain riskless principal transactions; it does not cover principal trades with markups in general. Outside the safe harbour, paying for products with client commissions is not automatically unlawful, but it is a fiduciary matter that needs full disclosure and consent; this policy forbids it. -->

### 4.1 Three-step test

Apply all three steps to each product or service paid with client commissions, and record the result in Annex A.

| Step | Question (original wording) | Evidence |
|---|---|---|
| 1. Eligibility | Is it "research" (advice, analyses or reports on securities, issuers, industries, economic factors, portfolio strategy, with intellectual content reflecting reasoning or knowledge) or "brokerage" (execution, clearing, settlement and functions incidental to them, from the time an order is sent until settlement)? | Product description, sample output |
| 2. Lawful and appropriate assistance | Does it actually help the Firm's investment decision-making or trade execution, as opposed to administration, marketing or overhead? | User list, use survey |
| 3. Good-faith reasonableness | Is the total commission, including any paying up, reasonable in relation to the value of the brokerage and research received, judged for the trade or for the Firm's overall responsibilities to discretionary accounts? | Research Committee minutes, broker vote, rate comparison |

### 4.2 Typical eligibility outcomes

| Category | Typical outcome | Notes |
|---|---|---|
| Company, industry and economic research reports | Eligible | Including independent research paid through a commission sharing arrangement |
| Meetings with analysts and industry experts that provide analysis | Eligible if they give substantive research content | Record the content; pure introductions are weaker |
| Market data used for investment analysis | Eligible or mixed use | Data used for back-office or client reporting is not eligible |
| Pre-trade and post-trade analytics (cost estimates, transaction cost analysis) | Eligible as research | They give analysis that informs trading decisions |
| Algorithms, order routing and connectivity used during execution | Eligible as brokerage when used from order transmission to settlement | Order management systems for compliance or accounting are not eligible |
| Seminar or conference registration fees | Eligible only for the part with substantive research content | Record the agenda; travel, meals and lodging are never eligible |
| Office space, furniture, general computer hardware, telephone lines | Not eligible | Overhead |
| Travel, meals and lodging to attend research meetings or conferences | Not eligible | Pay from Firm resources |
| Professional memberships, training, marketing services, client reporting | Not eligible | Pay from Firm resources |
| Portfolio accounting, compliance monitoring, proxy voting services | Not eligible | Pay from Firm resources |

### 4.3 "Provided by" the broker

Research paid with commissions must be provided by the broker-dealer that executes the trade, or by a third party that the broker pays under
an arrangement in which the broker takes on the payment obligation. Under a commission sharing arrangement, the executing broker (or a broker
that participates in the execution and clearing) pays the research provider from the research component of commissions, and the Firm checks
that each payment is for eligible research. The Firm never pays a research provider directly and then asks a broker to reimburse it.

### 4.4 Making the good-faith determination and paying up

The good-faith determination is the core of the safe harbour, and it is
a judgement the Firm must be able to explain afterwards. Make it at two
levels. For each broker, compare the all-in commission rate with the
execution-only rate available for similar trades, and record the
difference as the amount paid up for research. For the research
programme as a whole, compare the total paid up (USD 1,300,000 in
FY2025) with the value the Research Committee places on what was
received, using the broker vote and the quality assessment in section 9.
If the Committee cannot say why the research was worth what clients
paid for it, the determination is not made in good faith, however
complete the paperwork.

Paying up is permitted, not required. It is reasonable where the
research is used in managing the accounts that pay for it, where the
rate is in line with what comparable managers pay, and where the
executing broker still meets the Firm's execution quality thresholds.
It is not reasonable where commissions are steered to a broker only to
reach a research payment target, where research credits build up
without a plan to use them, or where the same research could be bought
for much less on a hard-dollar basis. The Committee records its
conclusion in its minutes each quarter, with the rates compared and any
broker whose rate was challenged.

Common errors: treating the safe harbour as covering all trades (it
does not cover most principal trades, so fixed income markups never pay
for research under this policy); relying on a broker's description of
a product as "research" without reviewing its content; and forgetting
that the determination may be made for the Firm's overall
responsibilities across discretionary accounts, which then requires the
disclosure in Item 12 that research benefits accounts other than those
that paid for it.

## 5. Eligibility decisions and mixed-use allocation

<!-- Guidance: A mixed-use product serves both eligible and non-eligible purposes. Only the eligible share may be paid with client commissions; the Firm pays the rest. Use a reasonable, documented allocation method (for example user surveys, time logs, user counts by function) and refresh it at least annually. Pitfall: an allocation fixed years ago that no longer reflects how the product is used. -->

| Product ID | Product and provider | Decision | Eligible share | Method | Reviewed |
|---|---|---|---|---|---|
| RSH-001 *(Example)* | Independent macro research, [Provider A] | Eligible research | 100% | Content review; used by all portfolio managers | YYYY-MM-DD |
| RSH-002 *(Example)* | Sector research, [Provider B] | Eligible research | 100% | Content review | YYYY-MM-DD |
| RSH-003 *(Example)* | Financial data terminal, [Provider C], 10 licences | Mixed use | 70% | Annual user survey: 7 of 10 licences used by investment staff for analysis; 3 by operations and client service | YYYY-MM-DD |
| RSH-004 *(Example)* | Expert network calls, [Provider D] | Eligible research for calls with substantive analysis; introductions-only calls not eligible | Per call | Call log reviewed monthly | YYYY-MM-DD |
| RSH-005 *(Example)* | Conference travel and hotel | Not eligible | 0% | Overhead | YYYY-MM-DD |
| [RSH-NNN] | [Product] | [Decision] | [%] | [Method] | YYYY-MM-DD |

*Example (mixed use):* the data terminal in RSH-003 costs USD 120,000 a year. The eligible share is 70%, so USD 84,000 is paid through a
commission sharing arrangement and USD 36,000 is paid by the Firm from its own resources. Kestrel Bay Capital Europe analysts do not use these
licences, so no EU recharge applies to this product.

## 6. Research budget, broker vote and commission sharing

<!-- Guidance: Set an annual research budget before the year starts, from expected need, not from expected commissions. Use a periodic broker vote to value broker research, and keep execution and research commission components separate. Questions: who sets the budget, how often is the vote held, how are surplus or shortfall balances handled? Pitfall: trading more to "fill" a budget, or letting unspent CSA balances accumulate without a plan to return or use them. -->

### 6.1 Annual budget and actual spend

| Line *(Example, Kestrel Bay Capital, FY2025, USD)* | Amount |
|---|---|
| Total commissions on equity trades for US clients | 3,200,000 |
| Execution component (at execution-only rates) | 1,900,000 |
| Research component accrued in commission sharing arrangements | 1,300,000 |
| Paid to independent research providers through CSAs | 836,000 |
| Paid to executing brokers for proprietary research (broker vote) | 380,000 |
| Eligible share of mixed-use data (RSH-003) | 84,000 |
| Total research paid with client commissions | 1,300,000 |
| Approved research budget for FY2026 | 1,250,000 |

Check: 1,900,000 + 1,300,000 = 3,200,000, and 836,000 + 380,000 + 84,000 = 1,300,000.

How to set the budget. Start from need, not from commissions. Each
autumn, analysts and portfolio managers list the research they expect
to use in the next year, by provider and topic, with the reason and the
expected cost. The Research Committee compares the total with the prior
year's spend and quality scores, removes low-value items, and sets the
budget for research paid with client commissions and, separately, the
amount the Firm will pay from its own resources. The research component
of commission rates is then set so that expected trading at normal
turnover will fund the budget; if turnover falls, the Firm does not
trade more to fill the gap but either reduces research or pays the
difference itself. The FY2026 budget of USD 1,250,000 is lower than the
FY2025 spend of USD 1,300,000 because Provider E will not be renewed
(USD 90,000) and Provider B moves to a lower tier, offset in part by a
new sector service.

Review the budget at mid-year. A forecast overspend needs Committee
approval before further payments; a forecast underspend is a signal to
review commission rates, not to find new things to buy. Unspent CSA
balances at year end (USD 62,000 in FY2025) are carried into the next
budget and reduce the research component of rates, so that clients who
generated them benefit.

### 6.2 Broker vote

| Broker | Vote weight *(Example)* | Allocation of USD 380,000 *(Example)* | Main research areas |
|---|---|---|---|
| Broker A | 35% | 133,000 | Global industrials, European banks |
| Broker B | 25% | 95,000 | Emerging markets, macro |
| Broker C | 20% | 76,000 | US technology |
| Broker D | 20% | 76,000 | Healthcare |
| Total | 100% | 380,000 | |

Rules for the vote:

- every analyst and portfolio manager votes [quarterly] on the value of research received, by provider and topic;
- votes are weighted by assets managed or coverage responsibility, using a method approved by the Research Committee;
- the vote sets research payments; it never sets trading volumes or broker selection, which follow the Best Execution Policy;
- a broker that falls below the Firm's execution quality thresholds stays off the execution list even if analysts value its research.

### 6.3 Commission sharing arrangement controls

| Control ID | Control | Frequency | Owner |
|---|---|---|---|
| RSD-CTL-001 *(Example)* | Reconcile research balances at each CSA broker to the Firm's ledger | Monthly | Head of Trading, CFO |
| RSD-CTL-002 *(Example)* | Approve each CSA payment against an eligibility record (Annex A) and the budget | Each payment | CCO, CFO |
| RSD-CTL-003 *(Example)* | Compare research-inclusive commission rates with execution-only rates; record paying up | Quarterly | Best Execution Committee |
| RSD-CTL-004 *(Example)* | Review unspent CSA balances and decide on use within the next budget period | Annually | Research Committee |
| RSD-CTL-005 *(Example)* | Test that trade allocation to CSA brokers is consistent with execution quality rankings | Quarterly | CCO |

## 7. EU framework: MiFID II research rules

<!-- Guidance: Apply only to EU investment firms (and to non-EU firms acting as delegated managers where the delegating firm contractually imposes the rules). The Listing Act Directive (EU) 2024/2811 rewrote the research payment option in MiFID II Article 24(9a), allowing joint payment for execution and research for issuers of any size, under conditions. Member States had to transpose it by June 2026, and Delegated Directive (EU) 2026/374 (dated 2026-02-20, published 2026-06-02) amends Article 13 of Delegated Directive 2017/593 to match. Check the national transposition and the consolidated texts before relying on this section. -->

### 7.1 Inducement rule

An EU investment firm that provides portfolio management or independent investment advice may not accept and keep fees, commissions or
monetary or non-monetary benefits from third parties in relation to that service, except acceptable minor non-monetary benefits (MiFID II
Article 24(7) and (8); Delegated Directive 2017/593 Article 12). Research received from a third party is not an inducement only when it is paid
for under one of the options in section 7.2.

### 7.2 Payment options

| Option | Summary of conditions (paraphrased; check the text) | Kestrel Bay Capital Europe *(Example)* |
|---|---|---|
| A. Own resources | The firm pays for research from its own money; no client charge | In use |
| B. Research payment account (Delegated Directive 2017/593 Art. 13) | Separate account controlled by the firm, funded by a specific research charge agreed with the client; research budget set and regularly assessed; charge not linked to transaction volume; client informed of the budgeted and actual research charge; regular quality assessment of research purchased | Not used |
| C. Joint payment with execution (MiFID II Art. 24(9a) as amended by Directive (EU) 2024/2811, and Art. 13 as amended by Delegated Directive (EU) 2026/374) | Firm informs clients of its choice of joint or separate payment; has a policy on joint payment covering how charges are allocated between execution and research; assesses at least annually the quality, usability and value of the research and its contribution to better investment decisions; further conditions per national transposition | Assessed 2026, not adopted |

### 7.3 Minor non-monetary benefits

| Benefit | Treatment *(Example)* |
|---|---|
| Short-term free trial of a research service, within the time limit in firm policy | Accepted; logged; ends automatically |
| Generic information about a financial instrument or investment service | Accepted |
| Participation in conferences and training on the benefits and features of an instrument | Accepted where of a reasonable value; logged |
| Hospitality of a reasonable minimum value during a business meeting or conference | Accepted within the Code of Ethics limits |
| Issuer-commissioned research made available to all, labelled as such | Accepted; check the issuer-sponsored research rules as amended by the Listing Act |
| Research reports sent unsolicited by a broker without a payment arrangement | Not accepted; reject and record |

### 7.4 Record of decision on the payment model

*Example:* On YYYY-MM-DD the management body of Kestrel Bay Capital Europe reviewed option C after national transposition. It kept option A
because its research use is modest (budget EUR 450,000 a year), clients value a simple fee structure, and moving to joint payment would require
a cost allocation policy, client information and an annual value assessment for little benefit. The decision will be reviewed in [2027] or
earlier if the research budget rises above EUR [threshold] or client demand changes.

### 7.5 How joint payment differs from the earlier research payment account

Before the Listing Act changes, an EU firm that wanted clients to pay
for research had to use a research payment account under Article 13 of
Delegated Directive 2017/593: a separate research charge agreed with the
client, a research budget set by the firm, regular assessment of
research quality, and detailed client reporting of budgeted and actual
charges. In practice most EU managers found this costly and paid for
research themselves. A narrow joint payment exemption for research on
small issuers was added in 2021 and later widened.

Option C, as rewritten in Article 24(9a) by Directive (EU) 2024/2811 and
reflected in Delegated Directive (EU) 2026/374, lets a firm pay for
research and execution together again, for issuers of any size, without
a separate research charge to the client. The safeguards move from the
client charge to the firm's own governance: the firm must tell clients
whether it pays jointly or separately, have a written policy on how
joint payments are split between research and execution, and assess
the quality, usability and value of the research at least annually.
For a firm like Kestrel Bay Capital Europe, choosing option C would mean
adopting that policy, aligning it with the US commission sharing
arrangements so that one research programme is not paid for twice, and
updating client information. National transposition may add conditions
(check national transposition), so record the measures relied on in
section 3.

## 8. UK framework

<!-- Guidance: UK rules are referenced by number only. The FCA introduced a joint payment option for investment research from 2024-08-01 (PS24/9) and extended it to fund managers in 2025 (PS25/4); confirm both in the FCA Handbook. If the group has a UK firm, the UK compliance officer completes this section using the FCA Handbook. -->

| Item | Entry |
|---|---|
| UK entity in scope | [Name / None] |
| Applicable rules (references only) | FCA COBS 2.3A and 2.3B (inducements and research), COBS 18 Annex 1 for fund managers, policy statements PS24/9 and PS25/4 (confirm the rule references in the FCA Handbook) |
| Payment model chosen | [Own resources / Research payment account / Joint payment option] |
| Decision record | [Reference, date, approver] |
| Client information provided | [Reference] |

## 9. Research quality assessment

<!-- Guidance: Assess research at least annually against stated criteria, whichever payment model is used. The EU rules require it for research payment accounts and joint payment; US practice uses the same assessment as evidence for the good-faith reasonableness determination. Pitfall: an assessment that only counts how many reports were read. -->

| Criterion | Weight *(Example)* | Evidence |
|---|---|---|
| Contribution to investment decisions (ideas adopted, models changed) | 35% | Analyst logs, investment committee memos |
| Quality and originality of analysis | 25% | Analyst scoring |
| Usability (timeliness, access, format) | 15% | User survey |
| Value for money compared with alternatives | 15% | Price comparison, market data on research pricing |
| Coverage of the Firm's investment universe | 10% | Coverage map |
| Total | 100% | |

| Provider | Score out of 100 *(Example)* | Annual cost (USD) *(Example)* | Decision |
|---|---|---|---|
| [Provider A] | 82 | 310,000 | Renew |
| [Provider B] | 64 | 260,000 | Renew at lower tier; renegotiate |
| [Provider E] | 41 | 90,000 | Do not renew from next budget year |

How to run the assessment. Collect scores from every user of each
provider, not only from the person who requested it, and weight them as
in the broker vote. Ask for evidence behind high scores: an idea that
reached a portfolio, a model that changed, a meeting that altered a
view. Compare cost per user and cost per useful item with alternatives
and with the previous year. A provider scoring below 50 is not renewed
unless the Research Committee records a specific reason, such as sole
coverage of a market the Firm invests in. The assessment feeds the
budget in section 6 and the good-faith determination in section 4.4.

## 10. Conflicts of interest and controls

<!-- Guidance: List the conflicts the research arrangements create and the control for each; link each to the Conflicts of Interest Register. Pitfall: ignoring cross-subsidy between clients, where clients with large commission-generating accounts pay for research that benefits clients who generate none. -->

| Conflict ID | Conflict | Control |
|---|---|---|
| RSD-COI-001 *(Example)* | Incentive to send trades to brokers for research rather than execution quality | Separate execution and research decisions (sections 6.2, 6.3); Best Execution Committee review |
| RSD-COI-002 *(Example)* | Incentive to trade more to generate research credits | Turnover monitoring by strategy; budget set independently of commissions |
| RSD-COI-003 *(Example)* | Cross-subsidy: commission-paying equity clients fund research used for fixed income, wrap or EU clients | Fixed income research paid by the Firm; EU recharge (section 3); disclosure that research benefits all accounts in the strategy |
| RSD-COI-004 *(Example)* | Paying for overhead with client money | Eligibility review (section 4); mixed-use allocation (section 5) |
| RSD-COI-005 *(Example)* | Gifts, entertainment or corporate access tied to broker relationships | Code of Ethics limits; corporate access eligibility review |
| RSD-COI-006 *(Example)* | Directed brokerage or referral arrangements that compete with research payments | Form ADV Item 12.A.2 and 12.A.3 disclosures; no referral-based broker selection |

## 11. Client disclosure and reporting

<!-- Guidance: Disclosure must let clients understand and consent to the practice. In the US the Form ADV Part 2A Item 12 discussion must cover the benefit to the adviser, the incentive, paying up, which accounts benefit, proportionality and specific product types bought in the last fiscal year; registered fund boards receive regular brokerage reports. EU clients receive the information required for the chosen payment option. ERISA plan clients may need additional reporting; check the US Department of Labor guidance cited in the references. -->

| Audience | Disclosure or report | Frequency | Owner |
|---|---|---|---|
| All US advisory clients | Form ADV Part 2A Item 12.A.1, updated with product types used in the last fiscal year | Annual updating amendment | CCO |
| Registered fund boards | Commissions paid by broker, research obtained, paying up, CSA balances, policy changes | Quarterly; policy annually | CCO |
| Private fund investors | Offering document disclosure; annual summary of commission use on request | Annual | General Counsel |
| ERISA plan clients | Information on commission use in line with plan fiduciary requests | On request and annually | CCO |
| EU clients *(option B or C)* | Payment choice, research budget, actual research costs, joint payment policy summary | Before service and at least annually | EU Compliance Officer |
| Prospective clients and consultants (RFPs) | Consistent answers drawn from this policy and Form ADV | Each request | Client service, reviewed by CCO |

## 12. Monitoring and testing

<!-- Guidance: Test the controls, not just the paperwork. Sample payments, recompute allocations, compare commission rates and trade flows, and confirm that disclosures match practice. Report results to the Research Committee and include them in the annual compliance review. -->

| Test ID | Test | Sample | Frequency | Last result |
|---|---|---|---|---|
| RSD-TST-001 *(Example)* | Each CSA payment has an eligibility record and budget approval | 25 payments | Semi-annual | [Pass] |
| RSD-TST-002 *(Example)* | Mixed-use allocations match the latest survey | All mixed-use products | Annual | [Pass] |
| RSD-TST-003 *(Example)* | Trade share by broker is consistent with execution quality ranking, not research vote | All CSA brokers | Quarterly | [Exception: Broker C share above ranking in Q2; explained by block liquidity; noted] |
| RSD-TST-004 *(Example)* | Form ADV Item 12 lists the product types actually bought | Full list | Annual | [Pass] |
| RSD-TST-005 *(Example)* | EU entity received no research paid with US client commissions without recharge | Research usage log | Annual | [Pass] |

| Key indicator | Target *(Example)* | Actual *(Example)* |
|---|---|---|
| Research spend as share of total commissions | Monitored, no target | 40.6% (1.30m of 3.20m) |
| Research spend against budget | Within budget | 1.30m against FY2025 budget of 1.35m |
| Unspent CSA balance at year end | Below USD 100,000 | USD 62,000 |
| Providers scoring below 50 renewed after review | 0 | 0 (Provider E, score 41, is paid to the end of its current contract and not renewed) |

## 13. Records

<!-- Guidance: Keep the records needed to show how each decision was made and each payment was justified. US advisers keep books and records under Rule 204-2; EU firms keep records under MiFID II and national rules. Set one retention period that meets the longest requirement. -->

| Record | Location | Retention |
|---|---|---|
| Policy versions and approvals | [Policy repository] | [Five years after superseded] |
| Annex A eligibility decisions and mixed-use allocation workpapers | [Repository] | [Five years after last payment] |
| Research Committee and Best Execution Committee minutes | [Repository] | [Five years] |
| Broker vote results and weighting method | [Repository] | [Five years] |
| CSA statements, reconciliations and payment approvals | [Finance system] | [Five years] |
| Quality assessments | [Repository] | [Five years] |
| EU budget, client information and joint payment decision records | [EU repository] | [As required by national law, at least five years] |
| Client disclosures and fund board reports | [Repository] | [Five years] |

## 14. Breaches and exceptions

<!-- Guidance: Define what counts as a breach (for example paying for a non-eligible product with commissions), how it is escalated and how clients are made whole. Exceptions to the policy need written approval and an expiry date. -->

| Breach ID | Description | Detected | Root cause | Client impact (USD) | Remediation | Closed |
|---|---|---|---|---|---|---|
| RSD-BRC-001 *(Example)* | Hotel and travel costs of USD 4,500 for an analyst attending an industry conference paid from a CSA balance (RSH-005 makes these not eligible) | RSD-TST-001, YYYY-MM-DD | Travel agency invoice bundled with the conference fee and coded as research | 4,500 | Firm reimbursed the CSA balance from own resources; finance coding rule changed | YYYY-MM-DD |
| [RSD-BRC-NNN] | [Description] | [How, date] | [Cause] | [Amount] | [Action] | YYYY-MM-DD |

Escalate any breach above [USD 10,000] or affecting a registered fund to the CCO within [two] business days, and to the fund board at its next
meeting. Where client money paid for something it should not have, the Firm restores the amount to the clients or CSA balance concerned.

## Annex A. Product eligibility request

<!-- Guidance: Requesters complete this form before a product is bought with client commissions or added to the EU research budget. The CCO and the Research Committee record their decision. -->

| Field | Entry |
|---|---|
| Request ID | [RSH-NNN] |
| Product and provider | [Name] |
| Requested by | [@analyst] |
| Users and their functions | [Names or roles; investment, trading, operations, client service] |
| Description of content or service | [What it provides] |
| How it assists investment decisions or execution | [Specific use] |
| Annual cost and pricing basis | [Amount, currency, per user or flat] |
| Proposed payment route | [CSA / Firm resources / EU budget / Mixed] |
| Eligible share and method (if mixed use) | [% and method] |
| Compliance decision | [Eligible / Mixed use / Not eligible], [@cco], YYYY-MM-DD |
| Research Committee decision | [Approved / Rejected], YYYY-MM-DD |

## Annex B. Traceability matrix

<!-- Guidance: Map each legal source and disclosure obligation to the sections and controls that meet it, so reviewers and auditors can test coverage. -->

| Requirement | Policy sections | Controls and tests |
|---|---|---|
| Section 28(e) eligibility and good-faith determination | 4, 5, 6 | Annex A, RSD-CTL-002, RSD-CTL-003, RSD-TST-001 |
| SEC Release 34-54165 guidance (eligibility, mixed use, "provided by") | 4.2, 4.3, 5 | RSD-TST-002 |
| Fiduciary duty and best execution | 1, 6.2, 10 | RSD-CTL-005, RSD-TST-003 |
| Form ADV Part 2A Item 12.A.1 disclosure | 11 | RSD-TST-004 |
| Rule 206(4)-7 policies and annual review | Whole policy | Section 12 |
| MiFID II Art. 24(7) to (9a); Delegated Directive 2017/593 Art. 12 and 13 | 3, 7, 9 | RSD-TST-005, quality assessment |
| UK inducement and research rules (references only) | 8 | UK compliance review |

## Glossary and references

<!-- Guidance: Use these terms consistently in the policy, the Form ADV and client materials. -->

| Term | Meaning in this policy |
|---|---|
| Client commissions (soft dollars) | Part of the commissions paid on client trades used to obtain research or brokerage services |
| Commission sharing arrangement (CSA) | Arrangement in which an executing broker separates the research component of commissions and pays research providers on the Firm's instruction |
| Execution-only rate | Commission rate a broker charges for execution without research |
| Hard dollars | Payment from the Firm's own resources |
| Mixed-use product | Product used partly for eligible purposes and partly for other purposes |
| Paying up | Paying more than the lowest available commission in exchange for research or brokerage services |
| Research payment account (RPA) | EU arrangement under Delegated Directive 2017/593 Article 13 funded by a specific client research charge |
| Joint payment | EU or UK option to pay for execution and research together, subject to conditions |

| Reference | Version or date | Use |
|---|---|---|
| Securities Exchange Act of 1934, Section 28(e) (15 U.S.C. 78bb(e)) | Current | Section 4 |
| SEC, Commission Guidance Regarding Client Commission Practices Under Section 28(e), Release 34-54165 | 2006-07-18, 71 FR 41978 | Sections 4 and 5 |
| SEC, Form ADV Part 2A Item 12 | Form SEC 1707 (08-22) | Section 11 |
| SEC Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Release IA-5248 | 2019 | Fiduciary duty |
| SEC staff MiFID II research no-action relief for broker-dealers | Expired 2023-07-03 | US broker status of hard-dollar research providers; seek counsel |
| US Department of Labor, ERISA Technical Release 86-1 | 1986 | ERISA plan clients |
| Directive 2014/65/EU (MiFID II) Art. 24, as amended by Directive (EU) 2024/2811 | Listing Act Directive, OJ 2024-11-14; transposition June 2026 | Section 7 |
| Commission Delegated Directive (EU) 2017/593 Art. 12 and 13, as amended by Delegated Directive (EU) 2026/374 | Amendment dated 2026-02-20, OJ 2026-06-02 | Section 7 |
| FCA COBS 2.3A, 2.3B and 18 Annex 1; PS24/9; PS25/4 | Cited by reference only | Section 8 |

## Standard and licence note

Based on Section 28(e) of the Securities Exchange Act of 1934, SEC Release 34-54165 and Form ADV Part 2A as published by the SEC (US federal works,
public domain), and on Directive 2014/65/EU, Directive (EU) 2024/2811 and Commission Delegated Directives (EU) 2017/593 and 2026/374 as published
on EUR-Lex (reuse with acknowledgement). FCA rules and policy statements are cited by reference only and no text from them is used. Conditions
are paraphrased in original wording and are not quotations; the payment model comparison and controls are an original structure. Kestrel Bay
Capital, Kestrel Bay Capital Europe and all figures are fictional. Check the current US guidance, the consolidated EU texts, national
transposition measures and UK rules before use. This is a document format, not legal, compliance, investment or tax advice. Template licence:
MIT.