FX Pre-Agreed Spread Agreements

The Importance of FX Pre-Agreed Spread Arrangements
Pre-agreed FX spreads are a key safeguard for clients operating in a foreign exchange market where banks do not act in a fiduciary or advisory capacity. This means banks are not required to prioritize the client’s best interest and instead act as counterparties aiming to maximize their own profitability. Most banks retain broad discretion in how they determine pricing and markups, citing a wide array of factors such as transaction size, currency pair, market volatility, and liquidity. Because these factors are loosely defined, banks effectively reserve the right to adjust spreads as they see fit, often without disclosing how those decisions are made or the revenue they expect to earn from a transaction.

This lack of transparency is compounded by the fact many banks do not reveal the specific components of the all-in rate or provide a breakdown of how the final price is derived. In addition, numerous banks apply “Last Look” policies, allowing them to perform final checks on trade pricing and validity before execution—and to reprice or reject the trade without disclosure if market conditions shift. A pre-agreed spread helps mitigate these risks by establishing consistent, upfront pricing. It limits the bank’s ability to manipulate markups at their discretion and provides clients with greater predictability and fairness in trade execution, particularly when transparency and alignment of incentives are otherwise lacking.

FX Pre-Agreed Spread Arrangements & Library Samples
Sample A-Pre-Agreed Spreads
In this sample, we observe that Company A has established a Pre-Agreed Spread Arrangement with Bank A. Under this arrangement, the agreed spread is set at 10 basis points over the True Interbank market rate. It is important to note that Bank A explicitly states it is not acting in a fiduciary capacity, meaning it does not represent the interests of Company A in the transaction and may have its own economic incentives. Furthermore, Bank A applies a “Last Look” policy, which allows it to conduct a final check on the validity and pricing of a trade before execution—potentially rejecting the trade if market conditions have shifted.

Bank A also operates across at least three different trading channels and engages in transactions involving a broad range of currencies, dealing with at least ten different currency pairs. This setup reflects a relatively complex trading environment with multiple execution venues and significant operational discretion on the part of Bank A.

Sample B-Counterparty- NOT a Fiduciary
In this sample, Company B has entered into a new Pre-Agreed Spread Arrangement with Bank B. Similar to Bank A, Bank B does not act in a fiduciary capacity, but it reserves the right to deviate from the agreed spread based on a wide range of operational and market factors, including transaction costs, execution channels, client credit risk, and the overall client relationship. Bank B’s spread schedule is more detailed than Bank A’s, featuring an 8-basis point markup that varies depending on transaction type.

The agreement also notes that trade execution may be delayed due to data interruptions, for which Bank B accepts no liability and may cancel trades if disruptions occur. Like Bank A, Bank B also implements a “Last Look” policy.

Sample C-Standardized Spread
In this sample, we see that Company C has a Pre-Agreed Spread Arrangement in place with Bank C. Similar to other arrangements, the agreed spread is set at 10 basis points over the Interbank market rate. While it is not explicitly stated, it is implied that Bank C is not acting in a fiduciary capacity, meaning it is not obligated to prioritize Company C’s best interests in the transaction process. Furthermore, Bank C's pricing practices lack full transparency, as it does not clearly disclose how markups are calculated or which specific factors influence the rates provided. Unlike Bank A, Bank C does not mention implementing any policy such as “Last Look,” leaving it unclear whether they reserve the right to reject or delay trades based on post-submission price or validity checks. Overall, the relationship between Company C and Bank C reflects a standardized spread arrangement with limited insight into execution practices or pricing methodology.

Individual Summaries from Bank Websites
Wells Fargo

Foreign Exchange Dealing & Business Practices Disclosure
This document discloses relevant practices of Wells Fargo Bank, N.A. (“WFBNA”) and Wells Fargo Securities International Limited (“WFSIL” and, together with WFBNA and its branches, “WF”, “we”, “us” or “our”) when acting as a dealer in the over-the-counter (“OTC”) foreign exchange (“FX”) market and it clarifies certain aspects of the foreign exchange trading relationship between you and WF. We urge you to consider this information in deciding whether to transact FX or place FX orders with us as our counterparty ("you" or" counterparty"). By dealing with or continuing to deal with WF you are deemed to have consented to and agree to deal with WF under and in accordance with the terms hereof, as amended through the date on which the parties have entered the applicable FX transaction.

Applicability and Scope
The information provided in this disclosure applies to any FX transactions you execute or discuss with us, subject to the terms of any written agreement between you and us, and supplements any other disclosures that we may furnish to you in connection with FX transactions or swap transactions, including through our Disclosure of Material Information for Swaps website. In the event of a conflict between the terms of this disclosure and such other agreement or disclosures, the terms herein shall prevail, provided, however, if such other agreement or disclosures meet requirements under applicable law (such as those specific to a particular jurisdiction or product), such other terms shall prevail.

Principal Trading
WF acts as principal on an arm’s length basis, does not act as your agent, fiduciary, financial advisor or in any similar capacity, and does not provide you with “best execution” for orders or transactions unless otherwise agreed in writing or required under applicable law. You and WF, as counter parties, or you and one or more other counterparties of WF may have divergent or conflicting interests from time to time. Each counterparty is expected to evaluate the appropriateness of any transaction, based upon its own circumstances and assessment of costs, benefits and risks. Statements made by WF should not be construed as recommendations or advice.

Market Making
WF is a dealer and market maker in the foreign exchange market. As such, we engage in price quoting, order taking, trade execution and other related activities with counterparties and other dealers and for our own account. As a market maker, WF may receive requests from multiple counterparties for quotations and multiple orders for the same or related currency pairs, and while customer service is a high priority for us, WF also manages its own independent risk management objectives. These activities may conflict with or adversely impact your interests, including the prices we offer you and the availability of liquidity at levels necessary to execute your order. They can also impact prices and trigger stop loss orders, barriers, knock-outs, knock-ins and similar conditions of FX transactions we may execute with you.

Foreign Exchange Pricing
All-in price and mark-up. The final price applicable to your FX transaction (also sometimes called the “all-in” FX price) with WF may be inclusive of mark-up. Mark-up is the spread or charge that may be included in the final price of your FX transaction in order to compensate WF for a number of considerations which may include without limitation risks taken, costs incurred, and services rendered, including an anticipated return. Different counterparties may receive different prices for transactions that are the same or similar. The mark-up applied to your transaction may be affected by several factors.

Factors that affect mark-up. Some factors that may affect mark-up include but are not limited to factors related to the nature of the specific transaction, factors associated with your broader institutional relationship with us, operating costs, credit, capital and funding costs, applicable trading venue or platform, regulatory requirements, relationship factors such as service level provided and volumes traded by you, the type of trade request, and business costs such as fees related to venues, brokers or other intermediaries. Markup may also vary based upon trading behavior and market conditions such as demand, frequency, timing and volatility.

Breakdown of mark-up. WF is not obligated to furnish a breakdown of the numerical components of mark-up. Notwithstanding any prior agreement, commitment, understanding or course of conduct between you and WF concerning pricing or markup, any time you transact FX with WF, the pricing terms of each FX transaction will be specific to and relate only to that FX transaction and will not apply to any other FX transaction with WF unless you and WF otherwise agree in writing, or as may be otherwise disclosed in writing by WF. As used herein, “pricing terms” include, without limitation, a pricing level, spread, markup, charge, fee or commission, or a benchmark, index, reference or pricing source.

Other fees. Certain types of transactions may be subject to additional fees (for example wire transfer fees). Wire transfer fees are disclosed in writing pursuant to any relevant fee arrangement we may have with you.

Orders
Placing orders. When a counterparty places a trade request or an order (collectively for this document, an “order”) for an FX transaction with WF, WF will treat that order as an offer by the counterparty to enter into that FX transaction. WF’s receipt of an order does not obligate us to accept such order, and our acceptance of an order does not constitute acceptance of such offer to execute that FX transaction, nor is it a guaranty that WF will be able to “fill” (i.e., execute) such order. Instead, acceptance of an order expresses WF’s willingness to attempt to enter into the FX transaction with the counterparty within the parameters of the order. Except where otherwise prohibited by applicable law, we retain discretion on handling counterparty orders. This includes, without limitation, order execution, aggregation, priority and pricing. WF does not have any obligation to disclose to a counterparty that it is handling other counterparties’ orders or its own orders ahead of, or at the same time as, or on an aggregated basis with, a counterparty’s order. Unless otherwise specifically agreed, WF exercises discretion in deciding which orders it is willing to execute, and how or if it will execute, including whether to execute all, part or none of the order.

WF reserves the right to revoke its acceptance of any order, in whole or in part, prior to such time as the order is filled or executed. If you communicate a request to cancel, revoke or amend an order before we have begun filling it, WF may attempt to action such a request, to the extent practicable, however, WF reserves the right to decline any such request, in whole or in part and without incurring any liability. Once WF fills or executes an order for an FX transaction, in whole or in part as the case may be, an FX transaction exists that is binding on both parties.

Order Handling. Unless otherwise agreed in writing, WF will exercise its discretion in deciding whether, when and how to execute orders. WF will exercise its discretion in deciding whether to time-prioritize or aggregate orders, acting fairly and based on factors including, without limitation, prevailing market conditions and order type. WF retains the right to determine how to allocate once an aggregated order is filled. Your order may be executed either electronically or manually, or a combination of the two.

Order Time Stamping. FX orders submitted electronically on a WF venue are time stamped upon receipt by WF. FX orders submitted electronically and executed on an external venue are time stamped upon receipt by WF of notice of execution from the relevant venue. Voice orders that are not subject to immediate execution are time stamped when input into our order management system.

Partial fills. A partial fill means execution of only a certain portion of an order. Except as otherwise agreed or provided by an order’s terms, WF reserves the right to partially fill an order without completing the entire order. WF typically endeavors to fully fill orders that WF is capable of filling within the parameters of the relevant order, however a partial fill may result based on (a) fair and reasonable considerations relative to prevailing market circumstances; and (b) other factors such as the need to prioritize among counterparty orders and the availability of credit for the particular counterparty at the time. WF will communicate partial fill decisions as soon as practicable taking into consideration the functionality of the applicable platform.

Market orders. A “market” order is an order to buy or sell at a price determined by prevailing market conditions; and the price filled may not be the price at which the trading desk executed in the market. If an order is described “at best” it is interpreted by WF as a market order, which is not synonymous with “best execution” as such term may be defined or applied by law or regulation.

Resting Orders. From time to time we may accept an order (such as a stop loss or take profit order) that is not immediately executable (a “resting order”), with instructions to execute when a price reaches a particular level (also referred to as a “trigger level”). WF determines in its sole discretion whether that level is reached, there by triggering the order. Any resulting execution of that order may, (a) with respect to a stop loss order, be subject to slippage; that is the resulting price may not equal the trigger level; and (b) take into account factors in the market at the time of execution plus WF’s mark-up (see Foreign Exchange Pricing above). WF may include a mark-up in its determination of whether the trigger level has been reached and in the execution price. WF shall have no liability for resting orders that are not filled.

Benchmark Orders. A benchmark order is an order to buy or sell a specific amount of currency at the requested benchmark rate, such as, for example, WM/Reuters reference rate at a specified time. WF may charge you a fee, commission or spread in connection with a benchmark order as part of the all-in price of such transaction.

You should be aware that WF may engage in activities that may impact trigger levels or benchmarks relevant to your orders or transactions. Such activities may include sourcing liquidity for other counterparty orders or for our own account, acting as a market maker or engaging in risk management activities such as hedging transactions.