ORDER EXECUTION POLICY (OTC) OF 23TH AUGUST 2010
1. General provisions
1.Orders Execution Policy of Retail Clients regarding Contracts for Differences (CFD) and Option Financial Instruments is presented to Clients in accordance with MIFID Directives 2004/39/EC and 2006/73/EC.
2.According to the applicable law, when executing Client’s Orders, X-Trade Brokers is required to act honestly, fairly and professionally in accordance with the best interest of its Clients. X-Trade Brokers has therefore adopted Order Execution Policy OTC (hereinafter the “Policy”), which determines the detailed description of executing Orders in order to achieve the best possible results for the Clients.
3.The following Policy is an integral part and should be read and understood in conjunction with the “Regulations concerning the provision of services consisting in the execution of orders to buy or sell property rights, keeping property rights accounts and cash accounts by X-Trade Brokers Dom Maklerski S.A.” (the Regulations). This Policy characterizes only some aspects of Orders execution at X-Trade Brokers. Detailed principles of Orders executions are set out also in the Regulations.
2. Area of application
1. The Policy applies to all Orders issued by Retail Clients, which are executed outside a regulated market (“Over the Counter”) involving financial Contracts for Difference (“CFD’s”) and Option Financial Instruments. It means that Client’s Orders will be executed outside a regulated market or multilateral trading facility (“MTF's”), for which the Client hereby agrees.
2. X-Trade Brokers will act as the second party of Transactions concluded in order to execute the Client’s Order. X-Trade Brokers adopted a internal procedure concerning prevention of conflicts of interests at X-Trade Brokers Dom Maklerski S.A.
3. Execution criteria
1. X-Trade Brokers as a matter of course incorporate the following relevant Orders execution criteria and factors so as to achieve the best possible result:
a. Price (please see the information in regard to establishing rates set forth in Chapter 8 of the Regulations);
b. Type of Order (for example, the variety of the Order, such as stop-Order or limit-Orders)’
c. Size of an Order (for example, whether the given Order exceeds the specified volume);
d. Costs related to the execution of an Order (if any).
2. X-Trade Brokers may incorporate other factors and criteria to the extent that they appear relevant to the execution of a certain Order if justified by Client’s interest.
3. X-Trade Brokers will immediately notify the Retail Client of all circumstances, which make the Order impossible to perform.
4.For Equity CFD’s transactions execution X-Trade Brokers relies on its counterparties to execute Underlying Instrument Transactions on Underlying Exchanges.
5. X-Trade Brokers makes sure that its counterparties’ execution policies protect clients’ best interest. These policies are reviewed on a yearly basis to ensure compliance.
4. Quotation of prices
1. X-Trade Brokers shall systematically quote on Trading Days the prices of Financial Instruments on the basis of prices of corresponding Underlying Instruments.
2. Detailed description of Trading Days of Financial Instruments available in X-Trade Brokers is set out in Table of Trading Days placed on the website www.xtb.pl.
3. Transaction prices shall be quoted in EOPS and OOPS on the basis of current prices made available on Underlying Exchanges, leading financial institutions or information agencies.
4. X-Trade Brokers shall use its best endeavours to ensure that transaction prices do not differ materially from the prices of Underlying Instruments made available in real time by the most reputable information services.
5. Grossly Erroneous Price
1. The Client accepts the fact that the prices provided by X-Trade Brokers by means of the transaction systems, may be considered as Grossly Erroneous. The conditions to recognize the price as Grossly Erroneous are described in the clauses below and in the Chapter 8 of the Regulations. In case when Grossly Erroneous price occurs, X-Trade Brokers shall have the right to evade from legal consequences of the Transaction concluded on the basis of such price, on the principles set forth in Chapter 8 of the Regulations. Prior to concluding Transactions with X-Trade Brokers, the Client should carefully acquaint himself with these principles and conditions mentioned below.
2. In the event of the CFD based on the exchange rates and precious metals, X-Trade Brokers may recognize the quotation as Grossly Erroneous, if the quotation indicated by two independent sources, differs from the quotations provided by X-Trade Brokers by at least ten times from the actual Spread. The independent source of the X-Trade Brokers prices shall be understood as a recognized broker or a recognized information agency.
3. In the event of the CFD based on the futures contracts X-Trade Brokers may recognize the quotation as non-market, if the quotation of the proper futures contract indicated by means of the information agency differs from the quotation provided by X-Trade Brokers by at least ten times from the actual Spread.
4. In the event of the CFD based on the futures contracts, X-Trade Brokers may deem the quotation as Grossly Erroneous in the following cases:
a. If the futures contract, being the basis of the assessment of CFD based on it, was suspended on the stock exchange and the Client concluded with X-Trade Brokers, the Transaction already after the futures contract has been suspended.
b. If the futures contract being the basis of the assessment of the CFD based on it, reached on the stock exchange the daily limit of the price fluctuations and the Client concluded with X-Trade Brokers the Transaction already after the futures contract reached the limit.
c. If the stock exchange, at which the futures contract is traded being the basis to make the assessment of the CFD based on it, cancels the Transactions concluded within the period, in which the Client’s’ Transactions were made on the Financial Instrument or if it cancels the Transactions on the futures contract at the prices, which were the basis to assess the CFD upon concluding the Transaction by the Client.
d. If the price of the futures contract being the basis of the assessment of the CFD based on it is, in the opinion of the recognized information agency, the implied from the Spread Transaction or the indicative price and this price differs from the previous transaction price by the amount exceeding ten times actual Spread for the CFD based on the futures contract.
5. In the event of the CFD based on the stock exchange indices X-Trade Brokers may recognize the quotation as Grossly Erroneous in the following cases:
a. If the average value of the price of the CFD (average of the bid and ask price) upon concluding the Transaction by the Client differs from the value of the index being the basis thereof by the value more than ten times from actual Spread for this Financial Instrument. The value of the index must be provided by the recognized information agency.
b. If not all stocks included in the composition of the index were the subject of the trade in this moment (were suspended or, for other reasons, the trade was impossible), which resulted in reforming the real value of the index.
6. In case of the CFD based on the prices of the stocks X-Trade Brokers may deem the quotation as Grossly Erroneous in the following cases:
a. If the average value of the price of the CFD upon concluding the Transaction by the Client differs from the value of the stock being the basis thereof by the value more than ten times from actual Spread for this Financial Instrument. The value of the stocks must be provided by the recognized information agency.
b. If the stock, being the basis of the assessment of the CFD is suspended, or the trade with it on the parental market does not take place for other reasons upon concluding the Transaction by the Client on the CFD.
7. In the event of the CFD based on the prices of the base metals (base metals) X-Trade Brokers quotes the prices of the cash market implied from 3-month forward contracts. X-Trade Brokers can deem the quotation of the CFD as Grossly Erroneous:
a. If the forward contract being the basis of the assessment of the CFD based on it was suspended on the stock exchange and the Client concluded with X-Trade Brokers the Transaction already after the forward contract has been suspended.
b. If the stock exchange, on which the forward contract is traded being the basis of the assessment of the CFD based on it, cancels the Transactions concluded within this period, in which the Transactions of the Client were made on the Financial Instrument or if it cancels the Transactions on the forward contracts at the prices, which were the basis to assess the CFD upon concluding the Transaction by the Client.
c. If the price of the forward contract being the basis of the assessment of the CFD based on it is, in the opinion of the recognized information agency, the implied price from the spread Transaction or the indicative price and its price differs from the previous Transaction price by the amount exceeding ten times actual Spread for the CFD based on the forward contract.
d. In case when the quotations of the forward contract indicated by means of the recognized information agency used for the implication of the cash price of the Financial Instrument differ by at least ten times the actual Spread from the price of the forward contract used by X-Trade Brokers to implicate the cash price of the CFD.
8. If, upon concluding the Transaction by the Client on the Option Financial Instruments, the reference exchange rate of the proper Financial Instrument, for which Option Financial Instrument was given was non-market in accordance with any criteria provided in the clause 5.2-5.7, then X-Trade Brokers shall be entitled to recognize the price of such an Option Financial Instrument as Grossly Erroneous.
9. If the reference exchange rate of the Financial Instrument used to assess the Option Financial Instrument differs from the exchange rate of the Financial Instrument quoted at this time on the transaction platform, then X-Trade Brokers shall be entitled to recognize such a price of Option Financial Instrument as non-market.
10.In case of an Option Financial Instruments based on the prices of the currencies and precious metals, X-Trade Brokers may deem the quotation as Grossly Erroneous, if the price of the Option Financial Instrument differs from the price of the option (of the same time, expiration date, strike and other potential parameters) calculated on the basis of the input variables of the Black-Scholes model provided upon the moment of concluding the transaction of the Option Financial Instrument by more than 40%. The calculation is made from the Black-Scholes model on the basis of the market parameters obtained from the information service Bloomberg or the specialist transaction service of the derivative instruments Superderivatives.
11.In case of the Option Financial Instruments for the Financial Instruments based on the futures contracts X-Trade Brokers may deem the quotation as Grossly Erroneous, if the price of the Option Financial Instrument differs from the price of the option (of the same type, expiration date, strike and other potential parameters) calculated on the basis of the input variables of the Black-Scholes model provided for the moment of concluding the Transaction of the Option by more than 40%. The calculation is made from the Black-Scholes model on the basis of the market parameters of the model obtained from information service Bloomberg or a specialist transaction service of the derivative instruments Superderivatives.
12.In case of the Option Financial Instrument for the Financial Instruments based on the base metals X-Trade Brokers shall be entitled to recognize the price of the Option Financial Instrument as Grossly Erroneous, if the value of the volatility parameter used for the assessment differs by at least 25% from the value resulting from the Heston-Nandi model (with the use of the actual parameters of the model). In case of other parameters used in the Black-Scholes model to calculate the price of the Option Financial Instrument based on the base metals X-Trade Brokers shall be entitled to recognize the quotation as Grossly Erroneous in the event when any of these parameters (except for the volatility and reference rate of the Financial Instrument) differs by more than 40% from the values indicated as the market ones upon concluding the Transaction by the information agency Bloomberg.
13.In case of the Option Financial Instruments, for which the optional stock exchange market is available X-Trade Brokers shall be entitled to recognize the quotation as Grossly Erroneous, if the volatility implied from the stock exchange with the parameters closest to the Option Financial Instrument differs by more than 25% from the volatility used by X-Trade Brokers to indicate the price of the Option Financial Instrument.
14. The models of option valuation – Black Scholes and Heston Nandi, are set forth in the Appendix to the herein Policy.
6. Time for execution of placed disposals
1. X-Trade Brokers performs Clients Disposals and Orders promptly after its placing by the Client, unless something different results from an Order. In standard market conditions, X-Trade Brokers within 90 seconds confirms the Disposals placed by the Client (Orders in case of Financial Instruments quoted in the "Instant Execution" mode or the price inquiry) concerning a given Financial Instrument. This condition, however, does not have any application in the situation when, on a given market, there is an exceptional volatility of prices of the Underlying Instrument or the loss of liquidity and in other cases qualified in accordance with the Regulations as Force Majeure.
2. Due to a level of complexity principles described in clause 6.1 do not apply to Option Financial Instruments. X-Trade Brokers shall use its best effort as to make the time of an Order’s execution not longer than 90 seconds.
3. In the period when market is opening, as mentioned in clause 7.4, standard time of the Order’s execution, as set out above does not apply.
4. X-Trade Brokers executes Client’s Orders in order of their reception, unless something different results from the conditions of an Order’s execution specified by the Client, character of an Order or if such order of Order’s execution is opposite to the Client’s interest.
5. Equity CFD’s Transaction entered by the Client in most cases generates a transaction on the Underlying Instrument on one or more of the Underlying Exchanges. Equity CFD quotation shown in EOPS should be deemed as indicative and it is not guaranteed that the Client will deal at this quotation. The current Equity CFD Price of the Transaction on an Equity CFD will be based on the transaction price of an Underlying Instrument reported back by X-Trade Brokers. The rules of establishing an Equity CFD Price are set out in chapter 8 of the Regulations.
7. Changes to the Spread
1. X-Trade Brokers applies a principle of quoting prices of Financial Instruments using a fixed Spread specified for each Financial Instrument in the Financial Instruments Specification Table.
2. a. X-Trade Brokers reserves the right to make changes in the X-Trade Brokers Spread in situations described in the Regulations. In those events Spread may be increased automatically without prior notice to the Client and without Client’s consent.
b. However for Floating Spread Account (CFD) chosen by the Client, the principles referred to in points 7.2 letter a and 7.3-7.5 shall not apply. For Floating Spread Account (CFD) X-Trade Brokers applies a principle of quoting prices of CFD with the use of variable Spread so that the Spread reflects in the best way possible prevailing market conditions and volatility of Underlying Instrument prices
3. In case of occurrence of a large volatility or limited liquidity of the Underlying Instrument X-Trade Brokers may without prior notice to the Client enlarge the Spread on Financial Instruments.
4. Particularly the period when the liquidity is largely limited on the underlying market is the opening of the market on Sunday at 11:00 p.m. X-Trade Brokers commences trading in such situations with an enlarged level of spread. Spread comes back to fixed values as fast as the liquidity and the volatility of the underlying market allows. Usually this process takes not more than 10-20 minutes, however in cases of limited liquidity or large volatility the process may take longer.
5. Points 1-4 do not refer to Equity CFDs. For Equity CFDs X-Trade Brokers shows variable Spread based on a prevailing Underlying Instrument price quoted on an Underlying Exchange. Spreads are not altered or widened in any way by X-Trade Brokers and are supposed to give Clients the current state of the market for Underlying Instruments on the Underlying Exchange. Equity CFD quotation shown in EOPS should be deemed as indicative and it is not guaranteed that the Client will deal at this quotation. The current Equity CFD Price of the Transaction on an Equity CFD will be based on the transaction price of an Underlying Instrument reported back by X-Trade Brokers. Clients should be aware that their Orders for Equity CFDs may be executed at prices better or worse than indicative price shown in EOPS. For Limit Orders the Price for Equity CFD may be only better then requested by the Client or the same. The rules of establishing an Equity CFD Price are set out in Chapter 8 of the Regulations.
8. Price limit orders, stop orders
1. The Client has the possibility to place Orders with the price limit and the stop Orders. The realization of the Orders with the price limit and the stop Orders for all the Financial Instruments with the exception of Equity CFD’s shall be held in the following manner:
a. The limit and stop Orders are realized at the price indicated by the Client with the exception from point b.
b. The stop and limit Orders realized upon the opening of the market are executed at the opening price for a given Financial Instrument.
c. The Orders of the limit and stop type can be placed only then when a given Financial Instrument is traded.
d. The Orders of the stop type cannot be placed if the absolute value of the difference between the price of the Order’s activation and the current price of the Financial Instrument is lower than the minimum limit for the stop Orders for a given Financial Instrument. These limits are available on the X-Trade Brokers website www.xtb.pl. The limits can be raised in case of the economic data defined in the section Calendar available on the X-Trade Brokers website www.xtb.pl or in case of the a high market volatility on a given Financial Instrument.
Limits for stop and limit Orders are enlarged at the moment of opening a market on Sunday at 11:00 p.m. Limits come back to fixed values as fast as the liquidity and volatility on the underlying markets allows. Usually the process takes from 10 to 20 minutes, however in cases of limited liquidity and enlarged volatility this period may last longer.
9. Order types for Equity CFD
1.Due to its characteristic Orders for Equity CFD’s may differ in some aspects from other Orders for other Financial Instruments. Prior to entering into any Equity CFD transaction the Client should become aware of how different Order types are executed for Equity CFD and how they may influence Equity CFD transaction price.
a. Limit Orders are realized at the price indicated by the Client or better.
b. In the money Limit Orders are not allowed. For Buy Orders highest possible limit is the current Ask price. For Sell Orders lowest possible limit is the current Bid price.
c. Stop Orders are realized at the conditions laid down by Underlying Exchanges.
d. Market orders are not subject to requote, which means that by using “Sell at Market” or “Buy at Market” the Client wishes to sell or buy Equity CFD at the price reflecting current market price of the stocks underlying the Equity CFD position.
If a Client wishes to execute a market order for Equity CFDs and relevant Underlying Stock is currently suspended for trading (frozen) on the Underlying Exchange, then if the market order for Underlying Instrument is not executed within 30 seconds, Client’s market order for Equity CFDs is rejected by EOPS.
10. Size of Order
Client’s Order may be rejected and cancelled, if it accounts for the amount exceeding the maximal value of Order specified in Financial Instrument Specification Table.
11. Place of performance
1.Due to fact that X-Trade Brokers shall serve as Client’s counterparty in regard to Transactions involving Financial Instruments, X-Trade Brokers shall be the place of performance of all such Transactions.
2.For Equity CFD X-Trade Brokers shall be a place for Client’s order execution. However for most Equity CFDs Transactions Client acquires Equity CFD after a corresponding Underlying Instrument Transaction has been completed on and Underlying Exchange. Therefore Equity CFD reflects a transaction in Underlying Instrument that was executed on an Underlying Exchange.
12. Technology
X-Trade Brokers shall use its best endeavours to provide the highest quality of technology, thus shall employ means which are aimed at ensuring the best execution of Client’s Order.
13. Review, audit and monitoring of these principles
1. X-Trade Brokers shall review the Orders Execution Policy (OTC) at least once annually and monitor regularly so as to determine whether the Orders are properly executed and in accordance with the Policy.
2. The current version of Orders Execution Policy is available on the website www.xtb.pl, and X-Trade Brokers shall notify the Client per e-mail or by internal post EOPS of any material changes to the adopted measures.
3. In order to provide and sustain high level of service for Equity CFD, X-Trade Brokers review the order execution policies of its intermediaries on a yearly basis.
Appendix - CHANGES-POLICY ENG 15 08 2010 (2)
