Best Execution Policy

1. Purpose and Scope

1.1 Purpose

The purpose of the Best Execution Policy (the “Policy”) is to explain how BlockNodes SAS (“the Company”) takes the necessary steps to obtain, while executing orders on behalf of its users, the best possible execution, defined as the best possible result for its users taking into account factors such as price, costs, speed, likelihood of execution and settlement. Through this Policy, the Company commits to taking all sufficient steps to execute orders on terms that are most favourable to its users and to act in the best interests of its users. This Policy should be considered alongside the Company App Terms of Use and is implemented in accordance with Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets (“MiCA”).

1.2 Scope

The Best Execution Policy applies to the execution of orders by the Company on behalf of users, as this service is defined under article 3 of MiCA. This Policy only applies with respect to crypto-assets, as defined in article 3 of MiCA.

The Best Execution requirement applies whenever the Company:

• Accepts to provide services that entail the execution of orders on behalf of its users; or
• Outside the cases covered by the previous paragraph, whenever it willingly and voluntarily accepts to abide by such duty.

The Company shall be acting on behalf of its users when it concludes agreements to purchase or sell one or more crypto-assets or subscribes for one or more crypto-assets, including at the moment of their offer to the public or admission to trading.

2. Best Execution

2.1 Reliance Factors

In order to determine whether the user legitimately relies on SwissBorg to protect its interests, the following factors are relevant:

• Which party initiates the transaction — where SwissBorg approaches the user and suggests that the user should enter into a transaction, it is more likely that the user will be placing reliance on SwissBorg.
• Market practice and specific orders — where the practice in the market in which a business area operates or the specificity of the user’s order suggests that the user takes responsibility for the pricing and other elements of the transaction, it is less likely that the user will be placing reliance on SwissBorg.
• The relative levels of price transparency within a market — if SwissBorg has ready access to prices in the market in which we operate and the user does not, it is more likely that the user will be placing reliance on SwissBorg.
• The information provided by SwissBorg and any agreement reached — where SwissBorg’s arrangements and agreements with the user do not indicate or suggest a relationship of reliance, it is less likely that the user will be placing reliance on SwissBorg.

2.2 Execution Factors

Under MiCA and applicable technical standards, the Company has an obligation to take all sufficient steps to obtain the “best possible result” for its users when executing orders taking into account execution factors (“Execution Factors”) which include:

• Execution price, taking into account any fees or commissions: the execution price considers all applicable costs, including execution venues fees and depth of the order book.
• Speed and likelihood of execution and settlement: execution and settlement efficiency are assessed based on the complexity of the trading route.
• Order’s volume and its eventual impact on market prices: the volume of the order and its potential impact on market prices are evaluated by considering the liquidity available on execution venues and the currencies in which such liquidity is denominated. Limited liquidity may restrict the execution of large orders. Additionally, the order’s impact on market pricing is factored into the price calculation, alongside an assessment of order book depth.
• Conditions of custody of the crypto-assets: custody conditions are evaluated based on the liquidity available on execution venues and the assets’ overall liquidity. Cash management considerations include the availability of reserves on specific venues and whether the asset is listed on a given venue.

2.3 Relative weight of the Execution Factors

The Execution Factors are weighted taking into account the circumstances of each order, specifically:

• The characteristics of the order:
  • Order size and type: the size of the order may influence the execution strategy. Larger orders may be routed to multiple execution venues platforms, with longer route lengths.
  • Specific instructions: any explicit directives from users may be honored, potentially overriding standard execution protocols.
• The crypto-assets relevant to the order:
  • Liquidity Profile: crypto-assets with higher liquidity typically allow for quicker execution with minimal price deviation. Conversely, less liquid crypto-assets may require adjusted strategies to reduce market impact.
  • Volatility Levels: crypto-assets exhibiting significant price fluctuations necessitate a focus on speed and likelihood of execution to capitalize on favorable market conditions and minimize exposure to adverse movements.
• The characteristics and reliability of the execution venues:
  • Execution Quality: assessment of execution venue based on historical performance regarding price improvement, speed, and fulfillment rates.
  • Transaction Costs: consideration of fees and commissions associated with each execution venue, aiming to optimize overall cost-effectiveness for the users.

While the relative weighting of execution factors is determined based on the specific circumstances of each order, the Company shall always seek to prioritize price as a key consideration.

3. Execution venues

Orders are executed by SwissBorg on third-party venues of three different types: centralised trading platforms, market makers and decentralised trading platforms. Execution venues are listed in Annex 3 to the SwissBorg App Terms of Use accessible on the Company’s website and updated accordingly every time a change happens. In addition, protocols used for Earn services are listed in the Annexes to the Earn Terms and Conditions accessible on the SwissBorg mobile application.

The Company does not receive any form of remuneration, discount or non-monetary benefit in return for routing orders received to a particular execution venue for crypto-assets.

To ensure ongoing compliance, the Company conducts initial and regular assessments of the execution venues based on criteria including:

• Reliability: we assess the execution venue’s operational resilience and capacity to handle peak trading volumes and maintain orderly execution during periods of market stress, with proven business continuity and resilience testing.
• Security: the execution venue must have implemented robust ICT policies and procedures, aligned with the requirements of Regulation (EU) 2022/2554 on digital operational resilience for the financial sector (“DORA”).
• Execution conditions: we monitor and regularly review the execution venue’s execution conditions, including liquidity, price, speed, availability of assets, type of assets and type of orders available.
• Custody conditions: the execution venue must be authorised to provide custody services under the MiCA Regulation. Regulatory compliance is regularly monitored to ensure the execution venue operates under robust regulatory supervision.
• Risk management: we regularly review the quality of execution provided by third-party execution venues to ensure they meet best execution standards and to manage risks. Each execution venue is rated with a real-time risk level, such as the number of failed orders in a given timeframe, and liquidity stored with the execution venue is managed according to its risk level.
• Ongoing monitoring: we continuously monitor the execution venues the OMS is connected to. In addition to a yearly review, a permanent control is conducted in order to detect any incident that may arise outside the annual review window.

4. Order handling procedures

Any order executed by the Company on behalf of a user is executed in accordance with this Best Execution Policy.

a. Execution factors

The main criteria taken into consideration by the Company to execute an order is the best price. Other criteria, such as liquidity on the trading platform, are not directly considered. When a user places an order, the Company proceeds as follows:

• Look for the best price by comparing the prices on execution venues:
  • The Company executes a trade by using the route that guarantees the best price, with up to 4 order books per route. Depending on the volume of the order and the depth of the order book, several routes can be used to execute a single trade.
  • Orders are ranked according to the following criteria: price, likelihood of execution and speed.
• Select the trading venue according to the priority criteria mentioned in section 3.
• Consider the most cost efficient route.

b. Execution outside a trading platform

The Company might execute orders outside a trading platform. This is the case when the Company executes on a decentralised exchange (DEX) protocol. DEXs are not trading platforms under the definition provided by MiCA.

The Company will only execute outside a trading platform when executing on a DEX provides the user with the best price available.

The Company provides in its Terms of Use that an order can be executed outside a trading platform, with reference to this Policy.

c. Execution process

Orders are executed according to a pre-determined process to guarantee and verify that the execution provides the best possible results for the user(s). The Company applies this process taking into consideration the market conditions, the nature of the user’s order and its risk tolerance:

• Planning by the OMS:
  • The OMS receives data from all the execution venues to which it is connected in the form of bids and asks.
  • For any pair (fiat-crypto, crypto-fiat or crypto-crypto), the OMS lists all possible routes.
  • For each potential route, the OMS calculates the price taking into account the quantity.
• Selection of the execution strategies:
  • Once the best routes have been chosen, the OMS creates a plan and sets a price.
  • At the time of the execution of the order at the proposed price, the OMS generates execution instructions for the execution venues. If the best price at the given execution venue is not available anymore, the OMS sends an order at the next best price on that same execution venue and repeats the operation up to a 3% unfavorable margin. Particularly during periods of high volume, illiquidity, fast movement or volatility, the market price at which an order is executed may be different from the prevailing transaction price indicated by the OMS at the time of the user’s order.
  • The OMS may fraction the order if the size of the orders requires it.
• Monitoring and verification of the best possible results.
• Trade errors: in cases where the execution price is (unfavorably) outside the 3% margin, the order is canceled.

d. Gas fees allocation strategy on DEXs

When an order is executed on a DEX, two independent aspects are taken into consideration:

• The likelihood that a transaction submitted by the Company on behalf of the user is included into a block (effectively materializing the submitted trade).
• The likelihood that the transaction itself will be accepted as valid. When submitting a transaction to a DEX, the Company needs to define the minimum expected outputs (price at which the exchange would be performed). Defining transaction outputs that are excessively strict increases the likelihood of rejection.

e. Partial execution or execution at a different price

Particularly during periods of high volume, illiquidity, fast movement or volatility, the market price at which an order is executed may be different from the prevailing transaction price indicated by the OMS at the time of the user’s order.

If there is an increase in the market price of the asset subject to the order, which would have an effect on the transaction price, the transaction will be executed provided that the percentage margin of the increase in the transaction price does not exceed the safety threshold (3%) of the price at the time when the order was made by the user. If the change in the transaction price is an increase higher than 3%, the user is informed that the transaction was not executed. The Company may retain any excess spread of a transaction.

The Company may apply limits in order to protect the user(s) from extensive market movements. Comparable orders are executed sequentially in accordance with their time of receipt, unless the characteristics of an order or prevailing market conditions make this impossible or impractical.

In the event of an order incident (e.g. partially executed order, either due to operational or market conditions), the order will not be deemed executed on behalf of the user. The Company will refund the assets to the user and consider it a trade failure. The user can only see their order executed if the order starts with the requested asset and ends with the requested asset (partial execution is not possible).

In the event where the characteristics of the orders or prevailing market conditions make the execution impracticable, or practicable in unfavourable terms and not in the best interests of the user, the execution of the orders by the Company may not be pursued.

f. Exceptional market conditions

External factors associated with volatility and liquidity may affect the execution of orders. As such, the following risks should be considered by users:

• Execution at a different price than the available quotes at the time of submission.
• Delays on execution.
• Delays caused by abnormal trading volumes, constraints on the quotes feed or general unavailability of the trading systems.
• Acts of god affecting significantly the operational capacity of the App and/or the Company’s availability to manage and process orders.

Furthermore, in the event of exceptional market conditions, a market disruption or other special circumstances, the Company may (if it deems to be necessary) deviate from this Execution Policy. This applies in particular in the event of significant intraday price fluctuations, significant temporary increases in the number of orders to be processed, a computer failure, system bottlenecks or software errors. Even under such circumstances, the Company will endeavour to execute orders in the best possible manner.

g. Types of orders

The Company only provides an order execution service and therefore does not manage an order book. The orders that users can place therefore depend on those that the Company transmits to the trading platforms.

Users can place the following types of orders within the SwissBorg App:

• Market orders: orders to buy or sell a crypto-asset immediately at the best available current price. The order is executed at the price offered by the OMS at the time the user places the order.
• Limit orders: orders to buy or sell a crypto-asset at a specified price or better. The order is executed at the price and quantity set by the user.

h. Spread

A spread is taken in order to allow the Company to increase the likelihood of execution by reducing the impact of sudden price movements.

5. Specific instructions from users

In a general manner, the Company does not accept specific instructions from users. Shall the Company, on an exceptional basis, accept specific instructions, the Company shall, if possible, transmit the order accordingly. If those specific instructions in any way contravene the standards laid down by this Policy, the Company shall be deemed to have complied with the Best Execution obligation in relation to the order aspects covered by the specific instructions.

Specific case of limit orders: the best execution principles laid down in this Policy will not be applied in case of limit orders: the trading venue where the limit order will be executed will be determined in advance. Giving the specific instruction to execute a limit order will prevent the Company from taking the steps that it has designed and implemented in this Best Execution Policy to obtain the best possible result for the execution of those orders in respect of the elements covered by those instructions.

6. Arrangements to prevent the misuse of information

In order to prevent the misuse of any information relating to users’ orders by the personnel of the Company, the Company enforces a Conflicts of Interest Policy and a Personal Transaction Policy designed to ensure the highest ethical conduct. These policies establish procedures aiming at preventing both intentional and unintentional acts of misusing users’ order information by employees of the Company.

As part of these procedures, the Company has implemented strict confidentiality controls, including information barriers, system access controls, conflict of interest monitoring, strict prohibition of any market abuse and insider trading, regular employee training and has deployed systems to prevent and detect any such activity.

7. Monitoring of the effectiveness of the execution arrangements and order execution policy

a. Demonstration of best execution at the user’s request

At the user’s request, the Company can provide proof that it has executed their orders in accordance with its Best Execution Policy.

b. Effectiveness of the best execution

The Company monitors the effectiveness of its order execution arrangements by assessing several criteria, including:

• The success rate.
• Potential deficiencies identified.
• Speed.

In practice, the control measures are of various kinds:

• Data verification: the consistency of all order books and market data is ensured by an algorithm that automatically checks for obvious errors.
• Alert system: alerts are triggered and can lead to temporary or definitive disconnection of an execution venue where some thresholds are crossed or some events (such as maintenance) happen on an execution venue.
• Audit log system: the OMS records all operations that have been carried out and the responses obtained. This makes it possible to find the status of all orders that have been executed successfully or unsuccessfully.
• Connectivity management: the Company monitors in real-time the liquidity on each execution venue, disruptions to the venue’s connectivity and trade errors.

8. Knowledge of the Policy

The user acknowledges this Policy and concedes his/her orders are subject to the terms and conditions laid herein in relation to:

• Execution factors and criteria.
• Execution means/channels and external trading platforms.
• External factors prone to influence execution results.

9. Policy review and approval

This Policy is subject to the Company’s internal control framework. This Policy shall be subject to revision at least annually or whenever a significant change occurs, namely in relation to execution factors, external trading venues or risks affecting execution results.

The Company users will be notified of material changes to this Policy.