Best Thread Capital Spreads
Phil Mibbutz
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So to sum up the situation with a spread bet:
Clients always trade off the quoted price, not the 'real market', but at the same time we must have access to 'real market' data so we can spot when the quoted prices are wrong. This apparently applies even with FX, where there isn't a 'real market'.
Clients can't cancel acceptance of a given price before the SB co decides whether to fill the order.
Furthermore, the SB company is at liberty to cancel any bet at any time after the event because there has been a 'palpable error'. When this happens, clients should, of course, have realised that they were being quoted an incorrect price and therefore only have themselves to blame.
And don't forget that the charts supplied don't necessarily reflect quoted prices.
All things considered, I think I'll stick to Lottery tickets -- the odds are better.
Meanwhile, let's hear from all those punters who've been in losing trades, only to receive a nice e-mail from a generous SB company saying there's been a palpable error and that the funds have been put back in their accounts.
Clients always trade off the quoted price, not the 'real market', but at the same time we must have access to 'real market' data so we can spot when the quoted prices are wrong. This apparently applies even with FX, where there isn't a 'real market'.
Clients can't cancel acceptance of a given price before the SB co decides whether to fill the order.
Furthermore, the SB company is at liberty to cancel any bet at any time after the event because there has been a 'palpable error'. When this happens, clients should, of course, have realised that they were being quoted an incorrect price and therefore only have themselves to blame.
And don't forget that the charts supplied don't necessarily reflect quoted prices.
All things considered, I think I'll stick to Lottery tickets -- the odds are better.
Meanwhile, let's hear from all those punters who've been in losing trades, only to receive a nice e-mail from a generous SB company saying there's been a palpable error and that the funds have been put back in their accounts.
I kind of promised myself not to come back to this thread, but the discussion is such an interesting one, and on such a good note that I cannot keep back. When is a spread betting contract a "binding contract"? An interesting issue no doubt about it. From a legal point of view. I think, first of all, one must look at the user agreement. In signing up with the company, what is it, that has been agreed upon by both parties? Secondly, does the company follow the MiFID "Best execution" directive? Thirdly, is there any exciting SB company in the the market, that would give away the right to reverse or alter a trade, when technical fault with a feed occur?
I agree, by and large, that there must be rules that stipulate such action as to why and when they occur, and a timetable for how it can be implemented. Both parties must know exactly where they stand in this regard. This is why I find the MiFID financial directives to be such an important breakthrough. They will eventually be tried out in court and thereupon, set a standard for the industry to follow. For the time being the industry, in a way, self regulates this problem through competition, but this is far from enough. The financial spread betting industry is growing tremendously fast in Europe, and as such, aiming at the mainstream, and, therefore, starting to have a bearing on the financial system. Regulation is becoming a necessity, in order to protect both the companies and the clients. I have no doubts whatsoever as to whether this will happen, hopefully, it will be sooner, other than later.
I agree, by and large, that there must be rules that stipulate such action as to why and when they occur, and a timetable for how it can be implemented. Both parties must know exactly where they stand in this regard. This is why I find the MiFID financial directives to be such an important breakthrough. They will eventually be tried out in court and thereupon, set a standard for the industry to follow. For the time being the industry, in a way, self regulates this problem through competition, but this is far from enough. The financial spread betting industry is growing tremendously fast in Europe, and as such, aiming at the mainstream, and, therefore, starting to have a bearing on the financial system. Regulation is becoming a necessity, in order to protect both the companies and the clients. I have no doubts whatsoever as to whether this will happen, hopefully, it will be sooner, other than later.
wasp
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sums it up pretty well IMO
Phil,
"and that the funds have been put back in their accounts".
I’ve always believed that morality/ethics and capitalism, eg the financial markets, are incompatible. But I also maintain that if you lack integrity and can’t run a business (brokerage/investment service) without sh1tt1ng on your clients, then the very legitimacy of your business is questionable; if current legislation and FSA regulations fail to address the issues, then legislation and regulations need to be revised (this is especially the case re FSA authorised boiler rooms).
I think it basically boils down to greed and the raison-detre for these operations – simply, there is a sucker born every minute. Lose a client, there’s plenty more to replace him who are willing to pay the price.
The problem with SB’s is lack of transparency re prices. The only solution I can see is for a centralised market of competing quotes – the SB’s will be the market-makers, so to speak. I’m sure this is within the capabilities of the big houses. Indeed, similar is happening where Goldman Sachs(?) and others bypass the LSE, NYSE, etc post price and quantity and trade between themselves.
Paul,
"no evidence yet that it ever happens when in favour of the client".
I often ask the same question myself. It’s suspicious to say the least. Usually due to computer error or an “oversight” by an operative. I believe this is cynical device to generate short-term gains.
For example, imagine a utility company overcharging by a few pennies a month which goes on for a few months before it’s discovered (or more than likely “exposed”). The company readily admits the error and repays the overpayment and everyone is happy (they haven’t lost anything). However, multiply pennies by millions of customers by eg 6 months, and this represents a fair wad.
Not the same but similar is Virgin’s penny increase on its broadband service, from £17.99 per month to £18.00 per month. Virgin gave the reason it simplified calculation of accounts (and who is going to complain about an extra penny a month on their bill?). NO, it’s a variation of the last example. I reckon Branson is the most underhanded businessman in the UK. I hate him with a passion.
Do you believe Branson was ignorant of the price-fixing of fuel surcharges? No way. This was a game of poker between Virgin and BA. The longer the bluffs, the greater the pot and the greater the pressure to get out (win). Neither knew how long the other could hold out (ie before being found out). Essentially, both had equal hands but Virgin pre-empted a call by basically calling foul and informing the US Department of Justice of its involvement and BA’s. Virgin “exposed” itself in sharp/illegal practises. This was a pre-planned, pre-emptive plea-bargain (bit of alliteration for you) but it wasn’t Branson who was the fall guy. End of rant.
Grant.
"and that the funds have been put back in their accounts".
I’ve always believed that morality/ethics and capitalism, eg the financial markets, are incompatible. But I also maintain that if you lack integrity and can’t run a business (brokerage/investment service) without sh1tt1ng on your clients, then the very legitimacy of your business is questionable; if current legislation and FSA regulations fail to address the issues, then legislation and regulations need to be revised (this is especially the case re FSA authorised boiler rooms).
I think it basically boils down to greed and the raison-detre for these operations – simply, there is a sucker born every minute. Lose a client, there’s plenty more to replace him who are willing to pay the price.
The problem with SB’s is lack of transparency re prices. The only solution I can see is for a centralised market of competing quotes – the SB’s will be the market-makers, so to speak. I’m sure this is within the capabilities of the big houses. Indeed, similar is happening where Goldman Sachs(?) and others bypass the LSE, NYSE, etc post price and quantity and trade between themselves.
Paul,
"no evidence yet that it ever happens when in favour of the client".
I often ask the same question myself. It’s suspicious to say the least. Usually due to computer error or an “oversight” by an operative. I believe this is cynical device to generate short-term gains.
For example, imagine a utility company overcharging by a few pennies a month which goes on for a few months before it’s discovered (or more than likely “exposed”). The company readily admits the error and repays the overpayment and everyone is happy (they haven’t lost anything). However, multiply pennies by millions of customers by eg 6 months, and this represents a fair wad.
Not the same but similar is Virgin’s penny increase on its broadband service, from £17.99 per month to £18.00 per month. Virgin gave the reason it simplified calculation of accounts (and who is going to complain about an extra penny a month on their bill?). NO, it’s a variation of the last example. I reckon Branson is the most underhanded businessman in the UK. I hate him with a passion.
Do you believe Branson was ignorant of the price-fixing of fuel surcharges? No way. This was a game of poker between Virgin and BA. The longer the bluffs, the greater the pot and the greater the pressure to get out (win). Neither knew how long the other could hold out (ie before being found out). Essentially, both had equal hands but Virgin pre-empted a call by basically calling foul and informing the US Department of Justice of its involvement and BA’s. Virgin “exposed” itself in sharp/illegal practises. This was a pre-planned, pre-emptive plea-bargain (bit of alliteration for you) but it wasn’t Branson who was the fall guy. End of rant.
Grant.
arabianights
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For the avoidance of doubt who here is a lawyer?
stevespray
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From the parts of the thread which I have read nobody appears to be claiming to be a lawyer.
Steve.
I agree, it would be good if a lawyer came in and gave his/hers viewpoint. On the other hand I doubt very much that a lawyer could have an answer to these rather complicated questions. They would, of course, look at the user agreement and also take the MiFID financial directives into consideration. They would go through related court cases to see, if any of these offer some guidance. SB and CFDs are, in a finance sector that is, now under active scrutiny, so tighter rules and regulations are definitely around the corner.
arabianights
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Yep - I know enough about law to know I don't know enough about law... Both viewpoints here make sense so really a legal opinion would be needed. It may even be the case that it would have to go to court for the issue to be clarified one way or the other.
stevespray
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I spoke to a couple of friends who I would regard as experts before posting a few of the items last week. Although I have faith in my own knowledge of the situation I wanted to be double sure on the points which my argument rested on. To the best of my knowledge everything which I have posted is correct. I am not a practicing lawyer.
To further underscore the points which I’ve raised I have cross referenced with other stuff reported via the internet. I’d happily stake my reputation on my argument.
For further evidence people can carry out their own research. Most online firms (Argos / Currys / PC World / Homebase) now get around the ‘pricing error’ scenario by not accepting clients ‘offers to trade’ until they are ready to dispatch items. This means that, from a legal perspective, no contract is formed between Party A and Party B until the firm in question has had a good chance to examine, and possibly react to, a clients offer to contract. This means that when a pricing error occurs they are not in breach of contract.
For more information on this people can research these points. Use Google and search for things like “Argos pricing error” or “PC World online price error” and you will turn up a dozen different news items which are all relevant. Once you read and understand these items you will start to notice a few underlying issues. The most notable fact is that firms now seek to protect themselves by not forming contracts at the moment that the client appears to ‘buy the item’. In all the cases the firms have sought to defend themselves from legal action by claiming that ‘a contract was never formed because we haven’t yet accepted the clients offer to form a contract’. In several cases even the lawyers defending the firms agreed that the clients would have a right to the item purchased if the clients could show that the firms had produced confirmations which showed that the order had been accepted. Furthermore, lawyers acting for these firms have stated that the only legitimate way for firms to protect themselves from pricing errors is to clearly point out, via a set of T&C, that the point of contract has been moved from the point at which the client would ordinarily expect that the contract has been formed ie the point at which the client appears to commit to buy something by passing through the act of paying for it. It appears acceptable under the law to accept a clients payment for something without actually reaching the point of contractual acceptance providing that this is clearly stated at, or before, the point which the client pays for something.
This doesn’t bode well for the online spreadbet businesses who clearly produce conformations of acceptance instantly when you attempt to make a trade. If you read the various T&C’s you will see that there is nothing written which indicates anything other than the fact that a contract is formed at the point which they accept your offer to bet. Therefore, in the case of a pricing error, the firms cannot use the only seemingly recognised defence of a contract never actually being formed.
Steve.
Phil Mibbutz
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It seems to me that most punters will lose sooner or later, with no need for the SB cos to adopt underhand tactics, such as only accepting bets that have already gone against clients. From a legal POV, the bit I don't get is how they can quote 'incorrect' or 'bad' prices, then back out of what would seem to be a agreed contract. If they make a mistake, they should be liable for it, otherwise there's absolutely no incentive for them to get anything right.
If the SB provider can back out of the deal, it's only fair that the customer should be able to do the same. Perhaps anyone who finds themself in a losing trade should contact CS and say they made a 'palpable error' when they clicked on the buy or sell box?
If the SB provider can back out of the deal, it's only fair that the customer should be able to do the same. Perhaps anyone who finds themself in a losing trade should contact CS and say they made a 'palpable error' when they clicked on the buy or sell box?
davecrom01
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" If you read the various T&C’s you will see that there is nothing written which indicates anything other than the fact that a contract is formed at the point which they accept your offer to bet. Therefore, in the case of a pricing error, the firms cannot use the only seemingly recognised defence of a contract never actually being formed."
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Hi Steve
Well they do say "confirmation either verbal or email is NOT a contract."
Hence I do think there is a valid question as to when, exactly, CS consider a contract to have been formed. I suspect the answer will be: "When YOU hit buy or sell, and WE (in our sole opinion) do not wish to clame palpable error". At the moment, that seems to be the current MO.
Dave
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Hi Steve
Well they do say "confirmation either verbal or email is NOT a contract."
Hence I do think there is a valid question as to when, exactly, CS consider a contract to have been formed. I suspect the answer will be: "When YOU hit buy or sell, and WE (in our sole opinion) do not wish to clame palpable error". At the moment, that seems to be the current MO.
Dave
arabianights
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Yes... but this is effectively all common law developed by courts in the 19th century, which could be overruled by statute (or even a new judge setting some precedent) wrt spreadbetting... and possibly even just by the FSA if it has the powers to do that enshrined in other legistlation (I've no idea if it does or not)
Like I said I don't know anything about law but I'm fairly sure it's a question that would probably have to go to court to be settled one way or t'other.
barjon
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steve
I'm no lawyer, but isn't it the case that you enter into an initial contract when you accept (as you must) their terms & conditions. It follows that the subsequent individual trading "contract" must be viewed against that primary contract and whether they have complied with it.
However much one may decry the (sharp) practices contained in the T&Cs one has agreed to them and must accept the consequences. There may be some room for manoeuvre if those T&Cs can be shown to offend and contradict some higher law, but that's a separate issue.
cheers
jon
Steve, you sure got some good points here. However, the exchanges make corrections, the DMA brokers make corrections, online stock brokers make corrections. I just cannot see why a SB company cannot make these corrections also, when a technical fault gives a quote that does not reflect the actual movement of the underlying asset. This is also stipulated by the MiFID directives, the quotes given should reflect the underlying asset. Also I am quite sure that the user agreement stipulates it, in some way or the other, the right of the SB to reverse or alter prices, that were caused by an obvious technical error (of course this should also be implemented the other way around, when a faulty price is in a clients favor). Otherwise, the SB company could find themselves in an unbearable situation, that in fact, financially, could jeopardize the existence of the whole operation. I would really be surprised if a court would rule in a client's favor, on a technical feed error. Either way, such a court ruling could set a standard for the industry to follow.
stevespray
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I agree with you. Most 'laws' are reactive in nature; laws are changed or invented when situations develop which require that a change is made, this type of thing could well be one of them. In the meantime however the cuurent laws must be applied.
Having said all that, certain 'codes of law' which are core or central to the way that a certain society works rarely get altered. I cannot see the offer / acceptance contract laws being altered since these laws are the basis for so much else - it would be rather like trying to alter the foundations of a house without upsetting the rest of the structure.
Steve.
stevespray
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But the whole point is that financial spread bets are recognised in law as being enforceable. It's a 'two way street'. The law wouldn’t say that a client could enforce a bet if he or she couldn't. This makes the individual contracts (the spread bets themselves) a legal entity in their own right hence the comments from my mate on ‘legal title’. I understand your points regarding the signing of a customer agreement but that agreement cannot breach or limit the rights given to you by greater laws. If you read the FSA document that I posted then you will see that the FSA makes this point to LCG several times. If there is a term or condition which makes certain spread bets unenforceable then that term or condition is attempting to exempt or limit a liability which the greater law clearly says a client has.
I would also point out that if the situation could be resolved by simply inserting such a term or condition (which allowed firms to cancel contracts after accepting them) then the firms like Argos Online and PC World Business (in fact anyone selling any item to anybody!) would simply place such a term or condition in their customer agreements thus instantly solving the matter and protecting the firm entirely. The firms aren’t allowed to do that and they know that such terms would worthless if challenged.
Steve.
capitalspreads
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About three years ago the FSA did indeed go through our terms and conditions (as, i understand, they do for all financial institutions), checking to ensure that there was nothing unreasonable and that it was written in plain, easily understood, english.
Their point about the pricing error part was nothing to with the actual rights we gave ourselves in the instance of a pricing error but was to do with the fact that we had not explicitly put in a clause stating that the clients had the reciprical rights if a price error had worked against him. To be honest it did not even cross our (no doubt, tiny) minds as, of course, we always refund clients on pricing errors that trigger stops, new orders etc but had not thought it necessary to actually put it in the terms. We would quickly bring down the ire of the regulators if we acted, even remotely, in this fashion (not to mention the reams of comment we would get on threads such as this if we did anything so stupid and counterproductive).
All we did was put in another sentance stating that the client had the same rights as we assigned to ourselves over pricing errors. Nothing sinister. Case closed.
There seems to be a huge amount of stuff written on price errors and the rights of SB companies when they happen. Its a dead issue (no matter what Steve might say to the contrary) nobody is going to agree to either a client or an SB company having the right to enforce a manifestly incorrect deal ticket.
People always say that SB companies have all kinds of tricks to harm clients.... the boring facts are so different. I have five dealers watching 3000 markets and on average we take nearly 20K trades each day. They have no time to look at individual client positions or to watch stop levels etc. They merely process stops when they are activated, manually accept a few trades (the vast majority go through the auto accept system) and monitor the overall risk levels. Their job is to ensure that the company, at all times, is kept within its risk levels on each and every one of the 3000 markets we quote. In the main they do not even notice the vast, vast majority of trades going through the systems. All they are interested in is the aggregate client positions to see whether a hedge is required or not.
Perception is an odd beast. A person with a £5 bet in cable is sure that the SB company has deliberately pushed the price just that extra pip to hit his/her stop. Problem is, if we did that, we would probably get another 20 or 30 quid of fresh positions from sharp eyed traders dealing on the momentarily shifted price. In reality we will never have even noticed the order in the first place. They only orders that dealers really take note of are the really big ones and that is only after they have been triggered anyway. I have stated it before on this thread and will say it again. We never, ever bias prices, period. Every price we quote is based on the underlying market in some or other fixed calculation method. This means that every stop/trade/order etc can be back calculated with the aid of the various exchange trade and quote data, so any disputes can be swifty investigated.
By the way Steve concerning your last post, as you mention Argos Online, please see below the clause taken from the Argos Terms and Conditions
4.2 The price you pay is the price displayed on this website at the time we receive your order apart from the following two exceptions:
a) For products reserved online for store pick up or any other reservation service the price you pay is the price in store on the day of collection.
b) While we try and ensure that all prices on our website are accurate, errors may occur. If we discover an error in the price of goods you have ordered we will inform you as soon as possible and give you the option of reconfirming your order at the correct price or cancelling it. If we are unable to contact you we will treat the order as cancelled. If you cancel and you have already paid for the goods, you will receive a full refund
Obviously they can, and do, put clauses to protect themselves from price errors in their contracts. I think that this rather refutes your entire argument.
Simon
Their point about the pricing error part was nothing to with the actual rights we gave ourselves in the instance of a pricing error but was to do with the fact that we had not explicitly put in a clause stating that the clients had the reciprical rights if a price error had worked against him. To be honest it did not even cross our (no doubt, tiny) minds as, of course, we always refund clients on pricing errors that trigger stops, new orders etc but had not thought it necessary to actually put it in the terms. We would quickly bring down the ire of the regulators if we acted, even remotely, in this fashion (not to mention the reams of comment we would get on threads such as this if we did anything so stupid and counterproductive).
All we did was put in another sentance stating that the client had the same rights as we assigned to ourselves over pricing errors. Nothing sinister. Case closed.
There seems to be a huge amount of stuff written on price errors and the rights of SB companies when they happen. Its a dead issue (no matter what Steve might say to the contrary) nobody is going to agree to either a client or an SB company having the right to enforce a manifestly incorrect deal ticket.
People always say that SB companies have all kinds of tricks to harm clients.... the boring facts are so different. I have five dealers watching 3000 markets and on average we take nearly 20K trades each day. They have no time to look at individual client positions or to watch stop levels etc. They merely process stops when they are activated, manually accept a few trades (the vast majority go through the auto accept system) and monitor the overall risk levels. Their job is to ensure that the company, at all times, is kept within its risk levels on each and every one of the 3000 markets we quote. In the main they do not even notice the vast, vast majority of trades going through the systems. All they are interested in is the aggregate client positions to see whether a hedge is required or not.
Perception is an odd beast. A person with a £5 bet in cable is sure that the SB company has deliberately pushed the price just that extra pip to hit his/her stop. Problem is, if we did that, we would probably get another 20 or 30 quid of fresh positions from sharp eyed traders dealing on the momentarily shifted price. In reality we will never have even noticed the order in the first place. They only orders that dealers really take note of are the really big ones and that is only after they have been triggered anyway. I have stated it before on this thread and will say it again. We never, ever bias prices, period. Every price we quote is based on the underlying market in some or other fixed calculation method. This means that every stop/trade/order etc can be back calculated with the aid of the various exchange trade and quote data, so any disputes can be swifty investigated.
By the way Steve concerning your last post, as you mention Argos Online, please see below the clause taken from the Argos Terms and Conditions
4.2 The price you pay is the price displayed on this website at the time we receive your order apart from the following two exceptions:
a) For products reserved online for store pick up or any other reservation service the price you pay is the price in store on the day of collection.
b) While we try and ensure that all prices on our website are accurate, errors may occur. If we discover an error in the price of goods you have ordered we will inform you as soon as possible and give you the option of reconfirming your order at the correct price or cancelling it. If we are unable to contact you we will treat the order as cancelled. If you cancel and you have already paid for the goods, you will receive a full refund
Obviously they can, and do, put clauses to protect themselves from price errors in their contracts. I think that this rather refutes your entire argument.
Simon
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Simon,
I think the pricing error question is now cleared. The issue now is at what point a binding contract is formed between parties - the FSA is now largely irrelevant.
"every stop/trade/order etc can be back calculated with the aid of the various exchange trade and quote data"
This is the major gripe against all SB's - the lack of transparency and consistency re pricing. I doubt you will produce your methods - but I would guess it's a variation the SPAN calculations (or simply ad hoc). It isn't a question of why clients can't get the market-price (this is the cost of trading through SB's), but the basis for the variation.
Grant.
Grant.
I think the pricing error question is now cleared. The issue now is at what point a binding contract is formed between parties - the FSA is now largely irrelevant.
"every stop/trade/order etc can be back calculated with the aid of the various exchange trade and quote data"
This is the major gripe against all SB's - the lack of transparency and consistency re pricing. I doubt you will produce your methods - but I would guess it's a variation the SPAN calculations (or simply ad hoc). It isn't a question of why clients can't get the market-price (this is the cost of trading through SB's), but the basis for the variation.
Grant.
Grant.
