Best Thread Capital Spreads

[chump]

moving the money has nothing to do with the legality of this issue.The law is the law and will apply BUT only after the parties have done the dance.
Just as CS moved the money I would have advised anyone in receipt of such a gift, many times their normal return ,to also remove the money immediately they realised the error had been made. Not spend it ,or make any commitment upon it ,just move it.This is not illegal,nor does it nullify the outcome from any subsequent proceedings. However , whilst the parties are talking and trying to find a resolution that allows them to continue then i would always want to have the leaverage of having the money that is under discussion.

 

[gle101]

That is not correct. The amount in question does not change any legal position regarding the right of CS to debit the funds, and further does not affect any weakening of their position if they were to give prior notice. I don't support the idea of messing about with an account without notifying the client either, but the amount in question makes no difference to the legality of doing this.

You are right, not the amount in question, I got it a little bit wrong there, but the kind of price feed error certainly do.

 

[stevespray]

Afternoon Simon,

Many thanks for your considered replies on the issues raised.

I think however that you are either missing (or perhaps skirting around) the points that I made in Post 3332. I fully understand the potential abuse which could occur on the system if clients were allowed to withdraw or amend submitted orders but this does not alter the legalities of the situation. By not allowing clients to withdraw orders to trade you are implying that clients are obligated to leave their order on your system (awaiting conformation) when in fact no contract yet exists between yourself and the client.
In your Post 3360 you compare spread betting with direct access and specify that losing trades always get filled whilst winning trades often slip etc. I can not argue with this since it is correct and factual but what I would say is that DA trades are instantly executed and thus removes argument over the right to withdraw an order. By introducing the right to manually process orders (be they market, limit or stop orders) it is the firms which are altering what might be described as ‘market practices’. In introducing a dealing delay you are looking for the best of both worlds – you want the right to reject trades which aren’t ‘economically viable’ whilst at the same time wanting to keep clients ‘locked in’ once they make their order to you. As with anything, if you want to squeeze and advantage out of a situation it comes with a pay off – in this case, if you wish to examine client’s orders before execution, then you have to face the fact that the client is perfectly entitled to withdraw that offer for whatever reason. This is not a point of ethics it is their legal right. If you wish to create a situation where the client is locked into their order then you must contract at the clients offer price. If the client can demonstrate that their order has not been executed then they can remove their offer to trade since no contract exists.

Steve.

 

[lurkerlurker]

Afternoon Simon,

Many thanks for your considered replies on the issues raised.

I think however that you are either missing (or perhaps skirting around) the points that I made in Post 3332. I fully understand the potential abuse which could occur on the system if clients were allowed to withdraw or amend submitted orders but this does not alter the legalities of the situation.

Steve, I refer to my post #3373 and would suggest that there is absolutely no potential for abuse, either with regular trades or new orders as CS always has the right to reject a trade if the price is no longer valid.

 

[gle101]

You say that my points on the withdrawing of a client order would have to be covered under the user agreement - I dont think this is so. Firstly, the 'user agreement' is just one of many potential sets of rules and regulations which set out the rules when forming contracts and indeed on spread betting in general. You can not escape from the legal perspective of how a contract is formed - there must be an 'offer' followed by an 'acceptance' - No contract is formed until both occur - this means that the client is not legally / contractually obligated until the firm accept the clients offer. This means that the client can withdraw their offer up until the point at which acceptance is made because no contract exists and therefore the SB firm is powerless to enforce the clients offer because it is only that 'an offer'. By not allowing the client to withdraw and offer the firm is effectively enforcing a contract which is only binding in one direction (ie the client can not escape their offer terms but the firm is free to choose to escape the terms of the clients offer if it so wishes). Legally speaking no one can enforce such a situation. Even if the firms T&C were written in such a manner as to entitle the firm to be able to act that way (and, in the case of CS, they dont appear to be written so) then the firm in question would most likely fall foul of the Unfair Terms And Conditions In Consumer Contracts Act Of 1999 since the enforcement of such a such a set of T&C would fundamentally alter the balance of the 'offer / acceptance = contract' laws.

In currently writing a further reply to Simon's post on this issue.

Steve.

I think it depends on the classification of client status. If I remember rightly, being an intermediate client, you are not entitled to "Best execution". This applies to trading with CFD's. I am not completely sure if it applies to spread betting as well.

Yes maybe Simon could clarify this issue.

 

[Splitlink]

moving the money has nothing to do with the legality of this issue.The law is the law and will apply BUT only after the parties have done the dance.
Just as CS moved the money I would have advised anyone in receipt of such a gift, many times their normal return ,to also remove the money immediately they realised the error had been made. Not spend it ,or make any commitment upon it ,just move it.This is not illegal,nor does it nullify the outcome from any subsequent proceedings. However , whilst the parties are talking and trying to find a resolution that allows them to continue then i would always want to have the leaverage of having the money that is under discussion.

Possession is nine points of the law. That's true.

`Split

 

[lurkerlurker]

Afternoon Simon,

Many thanks for your considered replies on the issues raised.

I think however that you are either missing (or perhaps skirting around) the points that I made in Post 3332. I fully understand the potential abuse which could occur on the system if clients were allowed to withdraw or amend submitted orders but this does not alter the legalities of the situation. By not allowing clients to withdraw orders to trade you are implying that clients are obligated to leave their order on your system (awaiting conformation) when in fact no contract yet exists between yourself and the client.
In your Post 3360 you compare spread betting with direct access and specify that losing trades always get filled whilst winning trades often slip etc. I can not argue with this since it is correct and factual but what I would say is that DA trades are instantly executed and thus removes argument over the right to withdraw an order. By introducing the right to manually process orders (be they market, limit or stop orders) it is the firms which are altering what might be described as ‘market practices’. In introducing a dealing delay you are looking for the best of both worlds – you want the right to reject trades which aren’t ‘economically viable’ whilst at the same time wanting to keep clients ‘locked in’ once they make their order to you. As with anything, if you want to squeeze and advantage out of a situation it comes with a pay off – in this case, if you wish to examine client’s orders before execution, then you have to face the fact that the client is perfectly entitled to withdraw that offer for whatever reason. This is not a point of ethics it is their legal right. If you wish to create a situation where the client is locked into their order then you must contract at the clients offer price. If the client can demonstrate that their order has not been executed then they can remove their offer to trade since no contract exists.

Steve.

We can see quite clearly that it provides an operational and financial advantage for any spread betting company to act in this manner. Given that this is the case, we must ask ourselves why companies such as CMC, City Index, and TradIndex all provide the facility to cancel a pending order. I would suggest that they either believe they are required to do so, or are concerned that failure to provide this facility could be seen as unfair.

I wonder if the FSA have published any guidance on this issue, or if there is anything relevant in the Handbook. I wonder if the FSA would be prepared to investigate and comment on this matter. Again, while this is not to be taken as legal advice, I agree entirely with the principle of what Steve says; a trade is either done or it isn't, and in the real market you can pull an order at any time before it is filled. Not allowing a client to withdraw an offer to contract implies either that the offer has been accepted (in which case the deal is done at that price), or the ordinary principles of Contract do not apply. I hardly think the latter is likely, in which case are Capital Spreads denying clients their legal rights, and indeed could they be shown to be acting unfairly in denying clients the ability to withdraw an offer before acceptance?

 

[lurkerlurker]

I think it depends on the classification of client status. If I remember rightly, being an intermediate client, you are not entitled to "Best execution". This applies to trading with CFD's. I am not completely sure if it applies to spread betting as well.

Yes maybe Simon could clarify this issue.

"Best execution" does not apply to spread betting. Most SB clients are classified as private customers, and classification as an intermediate customer is not a prerequisite to spread bet. You are quite correct that best execution does not apply when classified as an intermediate.

Before MIFD is implemented this year, spread betting firms are not subject to best execution, although this is likely to change. Best execution is covered by FSA Handbook rule COB7.5.3, which states:

"A firm that executes a customer order in a designated investment must provide best execution, unless COB 7.5.4 R applies."​

 

[chump]

"best execution" relative to what ? theirown market ,or the underlying one ? I'm sure the difference is obvious.

 

[stevespray]

I think it depends on the classification of client status. If I remember rightly, being an intermediate client, you are not entitled to "Best execution". This applies to trading with CFD's. I am not completely sure if it applies to spread betting as well.

Yes maybe Simon could clarify this issue.

I dont feel that this is an issue of 'best execution' but more of a contractual issue. Because of this the status of the client would not alter the clients right to withdraw an offer to contract if no acceptance had been made by the firm. Legally it is a two way street - if a firm delays executing an order then they are also presenting the client with the opertunity to withdraw that order - it's not rocket science.

Steve.

 

[Slorm]

I dont feel that this is an issue of 'best execution' but more of a contractual issue. Because of this the status of the client would not alter the clients right to withdraw an offer to contract if no acceptance had been made by the firm. Legally it is a two way street - if a firm delays executing an order then they are also presenting the client with the opertunity to withdraw that order - it's not rocket science.

Steve.

Long time since I did business law but from memory if a price changes it should be construed as a counter-offer and require acceptance by the other party. In other words, SB prices are an invitation to treat, client makes offer, SB accepts offer or makes a counter offer which the client then accepts or rejects.

 

[stevespray]

Long time since I did business law but from memory if a price changes it should be construed as a counter-offer and require acceptance by the other party. In other words, SB prices are an invitation to treat, client makes offer, SB accepts offer or makes a counter offer which the client then accepts or rejects.

Most spread betting T&C make it clear that the firm never makes an 'offer to contract at the quoted prices' and it is the client who makes the offer. I see your point with the 'counter offer' but technically I doubt whether it is actually legally considered 'an offer' but prehaps a further Invitation To Treat and thus the offer followed by acceptance / rejection proceedure just repeats itself. To be honest it doesnt matter how that bit works as what is important is that time passes between the offer and the acceptance. Any spread bet firm would be crazy to suggest that their T&C should be interpreted in such a manner as to imply that the firm makes 'offers' to clients across the internet since it would only take a client to, in hindsight, claim that they accepted such an offer and leave the firm in a position where a) they couldnt reject the trade as clients legally 'accept' offers and thus determine when a contract is formed and, b) firms would be wide open for clients to claim that they accepted 'offers' made 20 mins earlier and this bet wasnt showing on the accout yet - the firms would be powerless to show that no such acceptance occured.

Steve.

 

[gle101]

Long time since I did business law but from memory if a price changes it should be construed as a counter-offer and require acceptance by the other party. In other words, SB prices are an invitation to treat, client makes offer, SB accepts offer or makes a counter offer which the client then accepts or rejects.

I am not sure about this. If SB's are not at the moment subject to "Best execution", the SB company has the right to choose whatever execution model that suits them best. If that means auto execution, dealer intervention or whatever, you are in their hands. You have agreed to trading with the company on their platform. I understand what you mean, but no re-quote of prices please, ha ha!

 

[gle101]

"best execution" relative to what ? theirown market ,or the underlying one ? I'm sure the difference is obvious.

Price quoted by the SB.

 

[Slorm]

Most spread betting T&C make it clear that the firm never makes an 'offer to contract at the quoted prices' and it is the client who makes the offer. I see your point with the 'counter offer' but technically I doubt whether it is actually legally considered 'an offer' but prehaps a further Invitation To Treat and thus the offer followed by acceptance / rejection proceedure just repeats itself. To be honest it doesnt matter how that bit works as what is important is that time passes between the offer and the acceptance. Any spread bet firm would be crazy to suggest that their T&C should be interpreted in such a manner as to imply that the firm makes 'offers' to clients across the internet since it would only take a client to, in hindsight, claim that they accepted such an offer and leave the firm in a position where a) they couldnt reject the trade as clients legally 'accept' offers and thus determine when a contract is formed and, b) firms would be wide open for clients to claim that they accepted 'offers' made 20 mins earlier and this bet wasnt showing on the accout yet - the firms would be powerless to show that no such acceptance occured.

Steve.

I think it's as "broad as it's long" Steve, if it's not a counter-offer but a further invitation to treat the outcome is the same in that at that point no contract exists. So (in theory) the client should have the option to make a further offer based on the new price.

It seems to me that there should be three possible outcomes, the SB firm accepts the clients offer at the quoted price, declines the offer outright or requotes a new price on which the client can make a further offer.

 

[gle101]

We can see quite clearly that it provides an operational and financial advantage for any spread betting company to act in this manner. Given that this is the case, we must ask ourselves why companies such as CMC, City Index, and TradIndex all provide the facility to cancel a pending order. I would suggest that they either believe they are required to do so, or are concerned that failure to provide this facility could be seen as unfair.

I wonder if the FSA have published any guidance on this issue, or if there is anything relevant in the Handbook. I wonder if the FSA would be prepared to investigate and comment on this matter. Again, while this is not to be taken as legal advice, I agree entirely with the principle of what Steve says; a trade is either done or it isn't, and in the real market you can pull an order at any time before it is filled. Not allowing a client to withdraw an offer to contract implies either that the offer has been accepted (in which case the deal is done at that price), or the ordinary principles of Contract do not apply. I hardly think the latter is likely, in which case are Capital Spreads denying clients their legal rights, and indeed could they be shown to be acting unfairly in denying clients the ability to withdraw an offer before acceptance?

I think at the moment the only thing that could put real pressure on the SB's execution model is competition. Not many of the companies in the industry offer instant auto execution and notification on tight spread, and this, without fear of being put on referral to a dealer. Hopefully this is about to change with this new company that is soon about to open their door for us traders interactivespreads.com. I have come to know that they will have the same execution model as their FX service iflexfx.com If that is the case it will be very interesting to try them out.

 

[lurkerlurker]

Correct Slorm, but the point Steve was making is when you click on a price you are making the offer to contract - if the SB company accept, a contract is formed. The SB just give indicative prices as an invitation to treat and these are not offers. However, if the client makes an offer by clicking on a price, they should be (are?) entitled to withdraw that offer at any time prior to acceptance by the other party. This seems to imply that there should be a dirty big Cancel button on every CS deal ticket, just like with other SB firms, where a client can withdraw any offer they have made which CS are yet to accept.

In other words, if you try to trade, and the trade is referred to a dealer, who is dealing with other orders and doesn't see yours for 20 seconds, you should be able to cancel the order at any time before the dealer accepts it. This appears to me to be a clear point of law. It also makes sense - if the dealer hasn't seen the order, it hasn't been hedged, CS at that point owe you no profit (and can claim no loss from you) on that trade, and it doesn't affect their book risk because they are still unaware of it. How is it unfair to them to allow clients to cancel unfilled orders?

(obviously they make money from both the spread and client losses, so it suits them to have clients bound to their offer so they place a trade, CS can reject any trade it can't hedge properly at a good price, and if the price has moved substantially against the client, the client gets the bad price, CS hedges at the current price, and gets to keep the difference. I can see how they would be reluctant to change this as it works to their advantage.)

I am a little concerned that Simon responds to this request by stating people would try and make risk free money. That is simply not possible - if the price is not favourable to CS when they receive the deal (ie the market mid price differs from their bid/offer by more than the quoted spread for that instrument), they are perfectly within their rights to reject the trade. They can also refuse to accept an opening bet for any reason. If a client tries to deal, and the market moves so quickly in their favour that by the time a CS dealer gets to it they cannot hedge the position, then they can and will reject the trade. There is no free money here and CS is not "at risk" by being fair to clients and allowing them to withdraw an offer before acceptance.

 

[lurkerlurker]

Offtopic!

I think at the moment the only thing that could put real pressure on the SB's execution model is competition. Not many of the companies in the industry offer instant auto execution and notification on tight spread, and this, without fear of being put on referral to a dealer. Hopefully this is about to change with this new company that is soon about to open their door for us traders www.interactivespreads.com. I have come to know that they will have the same execution model as their FX service www.iflexfx.com. If that is the case it will be very interesting to try them out.

Thanks for the info GLE101! They are based in Ireland and are not regulated by the FSA or equivalent body - they come under the Irish Customs and Excise. FuturesBetting and TwoWayFutures are located offshore and provide direct access spreadbetting where they claim to instantly hedge every transaction and a deal is either done or not based on whether they could get their hedge on - effectively they are making a small spread around the underlying (varies with your volume) and laying off everything. They are regulated by the Gibralter FSC and they have passporting arrangements with the FSA, so UK based clients can be assured that they are regulated to the same standard as other FSA firms. TWF and FB only offer services to clients they can classify as intermediate according to the Gibralter FSC's standards.

I've not used any of these firms, but I'm considering FuturesBetting as they appear to be cheaper than Interactive Brokers for some markets at a certain volume, and I'd like to preserve the tax treatment of my profits.

Something to bear in mind at least. I am not posting links to these sites, as this is a thread about Capital Spreads and I feel that linking to a competitor may be bad form. This is going a little offtopic also. I wonder if Simon will respond to our questions....

Oh, and I think MIFD will put sufficient "pressure" on SB execution!

 

[Slorm]

Correct Slorm, but the point Steve was making is when you click on a price you are making the offer to contract - if the SB company accept, a contract is formed. The SB just give indicative prices as an invitation to treat and these are not offers. However, if the client makes an offer by clicking on a price, they should be (are?) entitled to withdraw that offer at any time prior to acceptance by the other party. This seems to imply that there should be a dirty big Cancel button on every CS deal ticket, just like with other SB firms, where a client can withdraw any offer they have made which CS are yet to accept.

Yes agreed. IMV the client should be able cancel until the offer is accepted and the SB firm should requote if they refuse the clients offer. The practice of filling an order at a different rate to the clients offer is dubious but I do accept this can favour the client at times, but in any case the client should have the option to cancel.

 

[gle101]

Thanks for the info GLE101! They are based in Ireland and are not regulated by the FSA or equivalent body - they come under the Irish Customs and Excise. FuturesBetting and TwoWayFutures are located offshore and provide direct access spreadbetting where they claim to instantly hedge every transaction and a deal is either done or not based on whether they could get their hedge on - effectively they are making a small spread around the underlying (varies with your volume) and laying off everything. They are regulated by the Gibralter FSC and they have passporting arrangements with the FSA, so UK based clients can be assured that they are regulated to the same standard as other FSA firms. TWF and FB only offer services to clients they can classify as intermediate according to the Gibralter FSC's standards.

I've not used any of these firms, but I'm considering FuturesBetting as they appear to be cheaper than Interactive Brokers for some markets at a certain volume, and I'd like to preserve the tax treatment of my profits.

Something to bear in mind at least. I am not posting links to these sites, as this is a thread about Capital Spreads and I feel that linking to a competitor may be bad form. This is going a little offtopic also. I wonder if Simon will respond to our questions....

Oh, and I think MIFD will put sufficient "pressure" on SB execution!

Sorry about the links. I have edit my post.

I did read a paper on MFID "Best execution" recommendation. There are some that claims it might not help traders as intended. Simon might know more about this issue.