Feeling ripped off by IG Index

Hi all. I'm new to the forum and wanted some thoughts from fellow spreadbetters on whether I've been treated unfairly by IG Index.

I've been trading for years with CMC and City Index with absolutely no problems but within 2 days of trading with IG Index I feel that I've been completely stitched up.

I opened a buy position in a stock where the current share price was 7.7 p

I was offered 7.5 - 7.9 for a day position or

4.5 - 4.9 for a Jun-09 position.

The Jun-09 position looked very attractive as it factored in the high dividend yield on the stock and at 4.9 limited my total downside to 4.9 points even if the share price fell to zero.

I opened a sizable buy position at 4.9.

Later that day I received this email ....

Dear Client,

We are writing to you to inform you of an adjustment made to your JUN09 Invesco UK Property Income Tst position. Invesco UK Property Income Tst will probably not be paying the dividend expected by our equity support department.

Therefore all open spread bets will be rebooked to amend your opening level by 3.038 points. At the same time we will amend the levels of our futures contracts by 3.038 points. This will mean no profit and loss difference to your positions.

Please do not hesitate to contact us should you have any further queries.


They had increased the Jun-09 price to 8.3p from the 4.9p I bought at.

There is no way I would have traded at this price.

I complained and got this reply ....

Thank you for your email. The reason that we adjusted the position was that our forward prices were becoming inaccurate, and as such it was decided that the cash price should be used. In addition, we may further adjust the positions as stated in our Customer Agreement (full details available at IG Index - Customer Agreement

28. Adjustments and takeovers

(1) If any Financial Index becomes subject to possible adjustment as the result of any of the events set out in Term 28(2) below (a "Corporate Event") affecting a related financial instrument, we will determine the appropriate adjustment, if any, to be made to the size and/or value and/or number of the related Bet(s) (and/or to the level of any Order) to account for the diluting or concentrating effect necessary to preserve the economic equivalent of the rights and obligations of the parties in relation to that Bet immediately prior to that Corporate Event, to be effective from the date determined by us.

(2) The events to which Term 28(1) refers are the declaration by the issuer of a financial instrument (or, if the financial instrument is itself a derivative, the issuer of the security underlying that instrument) of the terms of any of the following:

(5) In the event that there is declared or paid in respect of any financial instrument a special dividend or a dividend that is unusually large or payable by reference to an ex-dividend date that is unusually early or late (in each case, having regard to dividend payments in previous years in respect of that same financial instrument), we may make an appropriate adjustment (including a retrospective adjustment) to the Opening Level and/or the Stake of a Bet that relates to that financial instrument.

I hope this clarifies the situation. Please do not hesitate to contact us should you have any further queries.

I am now showing quite a sizeable loss (due mainly to the spread) that when I opened the position I was happy to ride until Jun-09. I now feel I am stuck in a very poor position and I have little choice but to close the revised position at a big loss.

IG effectively increased my buy trade price by 60% from 4.9p to 8.3p after I had traded.

This is an extreme adjustment to make and I have demanded that IG just cancel the deal but they are refusing so far.

Is it just me that thinks I've been stitched up?

Thanks all.

That is absolutely disgraceful behaviour, and is why I'll never use a non-hedged spread betting company again. Muppets. How are they still in business (or rather, how do they manage what must be a huge churn)?

This is total normal practice and is exactly what happens (to a degree) in the real world of shares.

It's simply to prevent people buying all the shares prior to dividend payout, getting the dividend then dumping them back onto the market, this of course would cause no end of problems.

So, the way they do it, (the world as a whole) is to factor in the dividend then adjust it once paid, ie, ex dividend, cum dividend ect. This effects the share price to prevent people from doing this. The SB firm simply offered, as they do always, a price that factors in the dividend, if the dividend is not to be paid out, they will then adjust their prices accordingly.

If you had of bought daily rolling, this of course would not have affected you and would have had to have paid the interest daily with no dividend factored in, the difference being that they factored in the divi and interest then when the divi got cut, so did your share worth.

It would have been a differnet story and I'm sure you wouldn't feel ripped off or scammed if you bought in now at these levels and then found out that the said firm was to pay a dividend, then you'd be quids in, or if you were the other side of the stock and found this out.

Welcome to the world of trading.

Thanks for that.

So, if the company does in fact declare a dividend next week then the price will be adjusted back down again will it?

Deleted.

wilwak said:

Thanks for that.

So, if the company does in fact declare a dividend next week then the price will be adjusted back down again will it?

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Simple answer is yes. (unless it was a misquote by the firm then they would have adjusted this automatcially, just the same if you were offered a price and it was wrong and they made money, you'd want it adjusted back at no cost to yourself).

It does however get a little more technical but that is the crux of the matter.

One way to view this is to buy the financial times everyday, you'll see marks against companies that are to be paid and that have previously paid divi's, you can also ring a number to get the publicly free financial report of the company you wish to invest in.

This is where I was born into, the world of equities before moving to indices 4 years ago. More for investing than trading and thats the general rule of thumb, not just my opinion.

Lee Shepherd said:

It's simply to prevent people buying all the shares prior to dividend payout, getting the dividend then dumping them back onto the market, this of course would cause no end of problems.

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What stops a share investor doing that?

Fortune500 said:

What stops a share investor doing that?

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Because as mentioned, they give you different prices, ie, ex div and cum div.

Lee Shepherd said:

This is total normal practice and is exactly what happens (to a degree) in the real world of shares.

It's simply to prevent people buying all the shares prior to dividend payout, getting the dividend then dumping them back onto the market, this of course would cause no end of problems.

So, the way they do it, (the world as a whole) is to factor in the dividend then adjust it once paid, ie, ex dividend, cum dividend ect. This effects the share price to prevent people from doing this. The SB firm simply offered, as they do always, a price that factors in the dividend, if the dividend is not to be paid out, they will then adjust their prices accordingly.

If you had of bought daily rolling, this of course would not have affected you and would have had to have paid the interest daily with no dividend factored in, the difference being that they factored in the divi and interest then when the divi got cut, so did your share worth.

It would have been a differnet story and I'm sure you wouldn't feel ripped off or scammed if you bought in now at these levels and then found out that the said firm was to pay a dividend, then you'd be quids in, or if you were the other side of the stock and found this out.

Welcome to the world of trading.

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Lee - I dont completely agree with your statement. The firm (in this case IG) are making the assumption, when they price their forward month futures contracts, that a dividend will be paid between now and June 09. I'm sure that you will agree that this is a long period of time and, considering the current financial conditions, no one can be sure of the dividends which might be paid in the upcoming 8 month period.

Surely therefore a client is entitled to speculate that a firm is overpricing or underpricing their instrument in a particular market. In this instance the client has spotted what he or she feels is 'good value' in the June 09 Futures quotation. Surely it is the firm which has to examine any potential risk when they enter the bet with the client? When they enter the bet they have to consider anything which may occur before the 'determination date' of the bet being entered; in this case June 09.

I also notice, in the first letter which IG sent to the client, that they say that Invesco UK "will probably not be paying the dividend expected" - They use the word "probably" - In other words they are being entirely subjective on the matter. The point is that it is IG who have changed their minds about how they are constructing their June 09 price.

I would strongly agree with the original post - In my opinion the firm are acting unfairly - The client is entitled to speculate on whether or not a dividend was going to be paid using his talents or skills. This is no different to buying or selling real shares in a real market.

You also have to take into account that the client considered 'price' when buying the contract with the firm - at 4.9p the contract was attractive but at 8.3p he considers that they are not.

Lee, the problem with you arguement is that the share price in the underlying market has, over a period of time, been slowly 'factoring in' the non payment of the dividend (if this is what goes on to occur). If the non payment was a sudden shock to the market then the share price would likely drop by the amount of the dividend expected in just the same way that a share price drops the morning it goes xd.

Personally I would say that this term or condition which the firm are attempting to use is unfair. It appears to defy the most basic of contractual laws - mainly that a deal is done and entered into at the moment that the firm accepts the clients offer to enter the contract. The firm cannot then retrospectively alter the terms of entry without the clients agreement.

Steve.

Great post Steve,

I'll let my feelings be known for you here.

I'm not bothered anymore, I've been chatting to all these people for so long and they come and go and still are none the wiser.

I give up, I just cant be bothered to fight it anymore.

I dont know what to say, go DMA, buy the real instrument and not a made up one????

I dont know because, quite frankly (no offence to you mate) I dont give a dam if these people lose money or not, I'm not here to save the world or an individual for that matter.

I've made some good friends on here and to which now keep in contact with them in the real world, the good traders can see that I'm no come and go'er or would be trader, I do this full time.

For this reason will be limiting my posts to just hanging around the good traders and not wasting time around the ones who (in their mind) feel trading difficult or impossible.

Sorry Steve.



Thanks for the effort in your post but I'm (as new trader says) unsubscribing.

Unsubscribed.

Watch out everyone; the ego has landed.

I have to nip out to a client now but I'm going to do a bit more digging on this one. To me this stinks. It appears to me that the firm is trying to offset its risk and liability (of entering certain bets with clients) by using this 'adjustment' business. This doesnt seem fair. This term or condition seems to be a method which the firm are using to get around having to do the leg work in producing a real time price which is valid at the moment a client wants to trade it. How can the firm show that the underlying market wasnt already pricing in the non dividend payment at the time the client opened the bet? Answer : They cannot!

I'll post later.

Steve.

Lee has my sympathy. There is nothing to be gained by repeating the whole thing chapter and verse every time a disgruntled punter comes along. Everyone has an opinion based on his own experiences and, it seems to me, that the experiences of some are pretty ghastly. They are unlikely to be convinced by anyone who has had any success, at all. In fact, success is often treated as some thing that only happens to big heads.

Split

Lee Shepherd said:

Because as mentioned, they give you different prices, ie, ex div and cum div.

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only for a couple of days

Have to agree with Lee here. It virtually says in the first post that the position looked too good to be true and it turned out to be the case.

You haven't lost any money as far as I can make out - so I'm not sure why you are complaining - other than objecting to not recieving that "free lunch" you thought you were entitled to.

Have to disagree entirely. It's like a bookmaker slashing the odds on your horse because at the start of the race it took a 10 length lead. It then says: "Well, it was obvious that the horse would take a ten length lead, and therefore our original price was wrong."

If you ask me, it's scandallous (be it in the terms and conditions or not).

Hoggums said:

Have to agree with Lee here. It virtually says in the first post that the position looked too good to be true and it turned out to be the case.

You haven't lost any money as far as I can make out - so I'm not sure why you are complaining - other than objecting to not recieving that "free lunch" you thought you were entitled to.

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Im with Fortune on this one - At what point has the market 'discounted' the non payment of the dividend? It's not back or white. By adding the divi value to the clients position the firm are implying that the market had 100% discounted the non dividend payment at the time the client opened the June 09 position - there is no way that they came claim this.

When they open a bet with a client based on a June 09 expiry they must discount what might occur between now and then; they must asign a value at the time of opening. It's no different to the real market in something like interest rate futures where the market itself decideds the probabilities of future rate cuts or hikes. When you here someone say "the market is pricing in a 75% chance of a 50bp cut" it means exactly that; the prices being traded reflect a value of 75% of what the market would be after the cut.

Steve.

Thanks for all your help. I very much appreciate it.

This is the first time I've experienced such an 'adjustment' and it's caught me out.

IG have assured me that if a dividend is actually announced then my price will be adjusted again to reflect it.

I must admit that I thought this was 'betting' so I accept the 'odds' on offer and either gain or lose from it. I thought the expected dividends they factor in were just that - expected and it's all part of the risk.

With them being able to change the prices after I've 'placed the bet' is a bit like them coming back after I've 'betted' on Man Utd and saying 'sorry, we're changing your bet becuase we've now found out that Wayne Rooney has a bad cold'.

Or, we never expected Newcastle to score first so we're not going to pay you so much if Man Utd now lose. :cheesy:

I live and learn ......... and lose!!!!!

Thank again!

Wilwak....

I think I have some good news for you.


If you refer back to your original post you will read the following in the letter you received from IG Index;

We are writing to you to inform you of an adjustment made to your JUN09 Invesco UK Property Income Tst position. Invesco UK Property Income Tst will probably not be paying the dividend expected by our equity support department.

Therefore all open spread bets will be rebooked to amend your opening level by 3.038 points. At the same time we will amend the levels of our futures contracts by 3.038 points. This will mean no profit and loss difference to your positions.

You will note that they use the words “probably not be paying the dividend expected”.

This is important – you will see why shortly.

The firm moves on to quote section 28 from the Customer Agreement. They state the following;

28. Adjustments and takeovers

(1) If any Financial Index becomes subject to possible adjustment as the result of any of the events set out in Term 28(2) below (a "Corporate Event") affecting a related financial instrument, we will determine the appropriate adjustment, if any, to be made to the size and/or value and/or number of the related Bet(s) (and/or to the level of any Order) to account for the diluting or concentrating effect necessary to preserve the economic equivalent of the rights and obligations of the parties in relation to that Bet immediately prior to that Corporate Event, to be effective from the date determined by us.

(2) The events to which Term 28(1) refers are the declaration by the issuer of a financial instrument (or, if the financial instrument is itself a derivative, the issuer of the security underlying that instrument) of the terms of any of the following:

(5) In the event that there is declared or paid in respect of any financial instrument a special dividend or a dividend that is unusually large or payable by reference to an ex-dividend date that is unusually early or late (in each case, having regard to dividend payments in previous years in respect of that same financial instrument), we may make an appropriate adjustment (including a retrospective adjustment) to the Opening Level and/or the Stake of a Bet that relates to that financial instrument.

The firm are therefore implying that they can alter your entry level because they are now considering that the dividend is not going to be paid. However, this is pure conjecture on their part since there does not appear to be such an announcement from Invesco themselves.

Read Term 28 of the Customer Agreement again!

In order to invoke their implied right to amend your bet level there has to be a ‘Corporate Event’ as specified in Term 28(2). Term 28(2) which sets out that such a ‘Corporate Event’ refers to (and I quote);

A “declaration by the issuer of a financial instrument” (ie Invesco)

So far as I can see there has been no such declaration by Invesco. I’ve checked their RNS logs and I cannot find that they have made such a statement. I therefore conclude, based on the lack of RNS and based on IG Index’s own wording in their letters to you (their use of the words ‘probably’), that the firm cannot invoke Term 28 since they cannot satisfy the relevant criteria required. In their letter to you they say that they are invoking their rights under Term 28 and move on to quote Term 28(2) – they don’t however check that Term 28(2) is being correctly satisfied. If there is no such news declaration from Invesco then the firm would appear to have breached their contract with you.


My advice would be to close the bet at the prevailing price and then argue the toss about getting the adjustment reversed. You would appear to have a win / win situation since they are going to have to reverse the price adjustment since they don’t appear to be able to satisfy the conditions of their own Customer Agreement. You would then pocket the difference between today’s price and the price which you opened at.

Happy days

Steve.

Lee Shepherd must be feeling like a right pillock now.