ECN/STP Broker Execution Policy Template
A template execution policy for ECN/STP forex brokers, with annotations explaining each section and why it's included.
## About This Template This template represents a <HighlightText variant="yellow">transparent, client-focused execution policy</HighlightText> for an ECN/STP broker. It includes strong best execution commitments, clear routing methodology, and conflict disclosures. <MarginNote>This is an educational example. Real policies should be reviewed by legal counsel and adapted to specific business models and jurisdictions.</MarginNote> --- ## 1. Execution Model **Template Language:** > [Company Name] operates as an ECN/STP (Electronic Communication Network / Straight Through Processing) broker. We do not act as the counterparty to client trades. Instead, we route all client orders to our network of liquidity providers for execution. **Why This Matters:** Immediately establishes the business model and clarifies the broker doesn't trade against clients. --- ## 2. Best Execution Obligation **Template Language:** > We are committed to providing best execution on all client orders. We take all sufficient steps to obtain the best possible result for clients, taking into account: > > - **Price** - The exchange rate quoted by liquidity providers > - **Costs** - Our commission structure and any LP markups > - **Speed** - Time from order receipt to execution > - **Likelihood of Execution** - Probability the order will fill > - **Likelihood of Settlement** - Reliability of trade settlement > > For most retail forex orders, price and costs are the most important factors, except when order size, market conditions, or specific client instructions require different prioritization. **Analysis:** Clear commitment with specific factors and weighting guidance. --- ## 3. Liquidity Provider Network **Template Language:** > We maintain relationships with multiple tier-1 liquidity providers, including: > > - Major international banks > - Non-bank liquidity providers > - Prime brokers > - Electronic trading venues > > Our LP network is reviewed quarterly to ensure competitive pricing and reliable execution. We may add or remove LPs based on execution quality metrics. **Why This Matters:** Transparency about LP sources. Multiple providers enable competition. <HighlightText variant="blue">Quarterly review</HighlightText> demonstrates ongoing commitment to execution quality. --- ## 4. Order Routing Methodology **Template Language:** > **Smart Order Routing (SOR)** > > Orders are routed through our Smart Order Routing system, which: > > 1. Aggregates quotes from all available LPs in real-time > 2. Evaluates each LP based on: > - Quoted price (best bid/ask) > - Available liquidity (depth) > - Historical fill rate > - Latency (response time) > 3. Routes to the LP offering the best overall execution > 4. Automatically fails over to alternate LPs if primary LP is unavailable > > **Manual Override** > > In exceptional circumstances (LP system failure, extreme volatility, technical issues), we reserve the right to manually route orders. All manual routing decisions are logged and subject to internal review. **Analysis:** Describes systematic, algorithmic routing while allowing necessary flexibility. --- ## 5. Price Aggregation **Template Language:** > Our platform displays the best bid and ask prices from our entire LP network. When you see a price on our platform, it represents: > > - The best available bid (highest price an LP will pay) > - The best available ask (lowest price an LP will sell) > - Our commission (added to the raw spread) > > You always see the final all-in cost before placing your order. **Why This Matters:** Explains how pricing works and commits to price transparency. --- ## 6. Order Types and Execution **Template Language:** > **Market Orders:** Executed immediately at the best available price from our LP network. We do not use "last look" - once you submit a market order, it will be filled at the displayed price or better, subject to available liquidity. > > **Limit Orders:** Held on our system and sent to LPs when the market price reaches your specified level. Execution is not guaranteed if liquidity is insufficient. > > **Stop Orders:** Triggered when the market price reaches your stop level, then executed as market orders. **Analysis:** Clear explanation of how different order types are handled. <MarginNote>"We do not use last look" is a strong client-favorable commitment.</MarginNote> --- ## 7. Slippage and Requotes **Template Language:** > **Slippage:** In fast-moving markets, the price you receive may differ from the price you saw when placing your order. This is slippage. It can be positive (you get a better price) or negative (you get a worse price). > > We do not artificially introduce slippage. Any slippage reflects actual market conditions and LP pricing. > > **Requotes:** We minimize requotes by using real-time LP quotes and sub-second routing. Requotes may occur if: > - You attempt to trade during a price gap > - Your order size exceeds available liquidity > - An LP's price changes before your order arrives > > Our target is <2% requote rate during normal market conditions. **Why This Matters:** Explains slippage honestly and commits to minimizing requotes with a measurable target. --- ## 8. Conflicts of Interest **Template Language:** > **LP Rebates:** We may receive volume-based rebates from liquidity providers. These rebates do not affect order routing - our SOR system is configured to prioritize execution quality metrics, not rebate amounts. > > **Internal Trading:** We do not maintain a proprietary trading desk that trades against client orders. > > **Order Flow:** We do not sell client order flow data to third parties. **Analysis:** <HighlightText variant="yellow">Transparent disclosure</HighlightText> of potential conflicts and how they're managed. --- ## 9. Execution During Abnormal Conditions **Template Language:** > During periods of: > - Major economic news releases > - Extreme market volatility > - Low liquidity (e.g., holidays) > - System disruptions > > You may experience: > - Wider spreads (reflecting actual LP pricing) > - Increased slippage > - Slower execution > - Reduced liquidity for large orders > > We do not artificially widen spreads. All spread widening reflects underlying LP pricing. **Why This Matters:** Sets realistic expectations for challenging market conditions. --- ## 10. Monitoring and Review **Template Language:** > We continuously monitor execution quality through: > > - Real-time tracking of fill rates, slippage, and execution speed > - Monthly LP performance reviews > - Quarterly assessment of SOR algorithm effectiveness > - Annual review of this execution policy > > We publish aggregated execution quality statistics on our website quarterly. **Analysis:** Demonstrates ongoing commitment to best execution with specific monitoring and transparency. --- ## 11. Client Order Priority **Template Language:** > All client orders are treated equally and executed in the order received (price-time priority). We do not: > > - Front-run client orders > - Give preferential treatment based on account size > - Trade ahead of client orders > - Delay execution to benefit our interests **Why This Matters:** Confirms fairness and equal treatment. --- ## 12. Right to Amend **Template Language:** > We reserve the right to amend this execution policy as necessary to: > - Reflect changes in our execution arrangements > - Comply with regulatory requirements > - Improve execution quality > > Material changes will be notified to clients 30 days in advance. **Analysis:** Standard amendment clause with reasonable notice period. --- ## Key Takeaways from This Template This template demonstrates strong execution policy elements: 1. **Clear execution model** - ECN/STP explicitly stated 2. **Strong best execution commitment** - Not just "endeavor" 3. **Transparent LP network** - Multiple providers, regular review 4. **Systematic routing** - Algorithm-based with limited discretion 5. **Conflict disclosure** - Rebates disclosed, order flow not sold 6. **Realistic expectations** - Honest about slippage and abnormal conditions 7. **Monitoring and transparency** - Quarterly statistics published 8. **Equal treatment** - No preferential handling Use this template as a benchmark when evaluating your broker's execution policy.