Reading the execution policy like a contract

[Fairman]

Reading the execution policy like a contract

The execution policy is a document most clients never open. It describes how orders are handled: routing, last look, slippage rules, requotes, price improvement, and what happens in unusual conditions.

Phrases to look for:

1. "Last look" or "validation" of orders, and the window involved.
2. "Dealing desk intervention" or "manual review", often used around news.
3. "Slippage may occur" and whether it applies symmetrically.
4. "Abusive trading" or "latency arbitrage" definitions, and the consequences.
5. Conditions under which prices may be "adjusted" or trades "canceled".
6. Rights to void profits from "erroneous quotes".
7. Treatment of stops during gaps.
8. Differences between account types.

The document tells what the broker reserves the right to do, not what it does. But the reserved rights are often broad, and the pattern of wording shows a broker's stance.

Clauses allowing cancellation of trades after the fact, based on the broker's own determination, deserve particular attention. A profitable scalp that is voided a week later is an expensive surprise.

Reading it once, before depositing, and saving a dated copy, provides a baseline for future disputes.

One more item to look for is the treatment of "off-market" prices. Many policies reserve the right to cancel trades executed at prices that deviate from the market by more than a stated amount. The clause protects against feed errors, and it can also be applied after a profitable spike that the broker dislikes.

A second is the reference to "manual intervention", which means a human at the dealing desk can influence fills in certain situations. A broker that discloses the circumstances in detail is more reassuring than one that mentions the term and gives no information. Printing the policy, marking the clauses that are unclear, and sending those specific questions to support gives a written trail that is useful later.

Which clause in a broker's policy was the biggest surprise when it was finally read?