Direct answer
For compensation schemes, the fees and spreads you should check are the ones that the scheme’s rules treat as part of the calculation, the documentation of what was charged, and the price inputs used to determine the outcome. Because spreads and execution prices can vary with market conditions, you also need to understand which parts are “published” (for example, how the provider represents pricing) and which parts are “variable execution outcomes” (for example, what price was actually achieved at the time).
Mechanism and definitions
A compensation scheme is a structured process that may offset certain types of customer harm under stated conditions. The key practical idea is separation:
- Published pricing and cost information: what the provider discloses before trading, such as commission schedules and how spreads are described (for example, as fixed or variable).
- Execution outcomes: what happens when orders are executed, including the effective bid-ask difference that results from real-time liquidity, order size, timing, and execution method.
When a scheme involves “fees” and “spreads,” it typically means either (a) costs the customer paid (commissions, certain charges), or (b) price effects expressed through spreads (the difference between buy and sell prices used to value the transaction). Some schemes may treat only specific cost categories as eligible, while others may exclude costs that are not part of their calculation model.
To check correctly, list every cost component referenced by the scheme’s rules and compare it to what was actually charged and to the pricing inputs it uses. If you cannot identify a cost category in the scheme text, you should treat it as potentially excluded from the scheme’s computation.
Evidence and example with assumptions
Assume a scheme’s rules specify that compensation is based on (1) eligible fees and (2) spread-related price effects measured between two timestamps. A useful way to verify the relevance of fees and spreads is to work in two layers:
- Cost-layer verification (stable inputs)
- Confirm whether the scheme includes commissions as eligible.
- Confirm whether the scheme includes any other disclosed fees (for example, administration or account charges) as eligible.
- Confirm whether the scheme distinguishes between different cost types and which ones it counts.
- Pricing-layer verification (variable inputs)
- Identify how the scheme measures spread-related price effects: does it use quoted spreads, executed prices, or a benchmark based on the market at the time?
- Use the scheme’s own definition for “spread” and its measurement points (timestamps). Without that, you cannot translate a general “spread went up” observation into the scheme’s required calculation.
Failure mode to consider: a scheme might compensate for certain execution-related cost components but not for market movement after execution. If you assume all losses are eligible, you can misinterpret what checking “spreads” can actually fix.
Limitations and risks to watch
- Not all spreads are eligible: The scheme may exclude some spread effects or use a specific measurement method that differs from how a customer perceives spreads.
- Execution can differ from expectations: Quotes are not the same as effective execution, especially during volatile moments or when liquidity is thin.
- Coverage gaps across cost categories: Some schemes may cover commissions but not other provider charges, or vice versa.
- Timing and measurement uncertainty: If you cannot align the scheme’s timestamps and price inputs with your records, you may be unable to validate the calculation.
Verification and next question
A self-check approach is: take the compensation scheme’s stated rules, extract (1) every cost category it references and (2) every pricing input it uses for spread-related effects. Then compare those to your records (what was charged) and to the measurement method (how spreads are determined). If the scheme text does not clearly define eligible fees or the spread measurement method, treat the verification as incomplete and ask a targeted question such as: Which specific cost categories and which exact pricing inputs does the scheme use in its calculation?