IGindex requoted already closed trade?!

[stevespray]

But none of this changes the fact that the firms form contracts with the clients in terms of the individual bets. In the case being discussed in this particular thread it has been stated (by the client) that the bet was opened and then closed before there was even a hint that the firm was unhappy with the way that it was quoting its market. It's my understanding that this is what is stated in the very first posts of this thread?

On that basis what is your arguement? That hundreds of years of contract law would be overturned if the firm admit that the 'accidently' didnt follow a MiFID directive? When is a bet not a bet? What happeneds when a client of a firm loses money due to a firms failure to observe a particular MiFID directive?

Dispite what a section of IG Index's T&Cs clearly states (that they can vary their quote from that of the underlying), you are saying that IG Index cannot do this as it in some way breaks MiFID? I'm not sure I agree with you. Surely anyone (a firm or otherwise) can price their products (index) how they like? I'm guessing that sometimes the firms might want to take other factors into consideration when pricing a market? Like current order flow, present market direction, volatility and the size and shape of the firms own order book in that particular market.

What you appear to be suggesting is a pretty strange situation; you seem to imply that the firm could defend itself by suggesting that terms or conditions in its own Customer Agreement are not valid? In this particular case you are saying that the part I quoted from Section 5 of IG's Customer Agreement is not actually correct (as you feel it doesn't follow MiFID) and that any firm can legitimately use that as a reason for cancelling it's legally binding bets?

Your arguement is a somewhat confusing one. Are the clients expected to pick through the various Customer Agreements to find terms or conditions which are invalidated by MiFID or do the firms have an obligation to present T&Cs which are constructed in such a manner that MiFID rules are met?

Certainly an interesting topic.

Steve.

 

[Jack Hughes]

That effectively seems to be what they're doing already.

 

[Xeno]

Of course none of my demented rambling affects the points that I have previously made; that the pivotal point in this matter is the moment that a bet is accepted by the firm. Clearly in this case the firm appears to act in a manner which indicated that it has the right to reconsider the clients offer (to enter and/or exit a bet) AFTER acceptance has taken place (given that a contract note has already been issued). This would never wash if the matter was escalated. Likewise I would suggest that the firm cannot simply enter a trade (or ‘adjustment’) onto a clients account to reverse such a trade without the direct consent of the client.

Steve.

Whilst I agree with much of your post, is it not the case that in this case they've done what you said they should and re-instated all the trades as originally accepted. Or is closing a trade treated the same way?

I've always seen the manifest error clause as really meaning, where we make a major error in our systems in quoting a price we will cancel all trades made on the basis of that price. I trade with that in mind, and see that as a feature of SB that I just have to put up with. I had thought that futures trades made in the US at the time were busted, and in some ways we should be happy that SB do the same and act more like the real market? Despite the conspiracy theories I would be very surprised if people who lost on stops were not refunded. That would be all over this forum if it hadn't happened (Anecdote: I did lose once on IG, and considered they'd made a mistake, and they refunded me.)

However, your point about price quoting being independent is a compelling one, and I would love the Ombudsman to rule on that.

 

[gle101]

But none of this changes the fact that the firms form contracts with the clients in terms of the individual bets. In the case being discussed in this particular thread it has been stated (by the client) that the bet was opened and then closed before there was even a hint that the firm was unhappy with the way that it was quoting its market. It's my understanding that this is what is stated in the very first posts of this thread?

On that basis what is your arguement? That hundreds of years of contract law would be overturned if the firm admit that the 'accidently' didnt follow a MiFID directive? When is a bet not a bet? What happeneds when a client of a firm loses money due to a firms failure to observe a particular MiFID directive?

Dispite what a section of IG Index's T&Cs clearly states (that they can vary their quote from that of the underlying), you are saying that IG Index cannot do this as it in some way breaks MiFID? I'm not sure I agree with you. Surely anyone (a firm or otherwise) can price their products (index) how they like? I'm guessing that sometimes the firms might want to take other factors into consideration when pricing a market? Like current order flow, present market direction, volatility and the size and shape of the firms own order book in that particular market.

What you appear to be suggesting is a pretty strange situation; you seem to imply that the firm could defend itself by suggesting that terms or conditions in its own Customer Agreement are not valid? In this particular case you are saying that the part I quoted from Section 5 of IG's Customer Agreement is not actually correct (as you feel it doesn't follow MiFID) and that any firm can legitimately use that as a reason for cancelling it's legally binding bets?

Your arguement is a somewhat confusing one. Are the clients expected to pick through the various Customer Agreements to find terms or conditions which are invalidated by MiFID or do the firms have an obligation to present T&Cs which are constructed in such a manner that MiFID rules are met?

Certainly an interesting topic.

Steve.

I am glad to noticed that you at least acknowledge the existence of MiFID and of its implementation for the SB industry.

I got the impression from the thread starter, that the price quote he got and traded on, did not reflect the movement of the underlaying asset. He might not have been aware of it at the time he made the trade. Nevertheless, IG reverted the trade on the basis of the price quote being erroneous (it did not reflect the movement of the underlaying asset).

You are right on the later part of your post. The client should be aware of the existence of the MiFID in order to rightly understand the T&C. There could be many paragraphs in the T&C that contradicts the MiFID. As I said before, MiFID clearly state that you cannot override the MiFID by entering such conditions in the user agreement. Yes, it is my opinion, that the SB company should not in the first place enter into the T&C conditions, that clearly contradict the MiFID.

Yes I agree, it is a very interesting topic.

 

[Jack Hughes]

I think we’re getting too bogged down in legal niceties here!

Reading through IG’s ‘explanation’ again, the whole thing comes across as complete bolleaux. Basically, they’ve admitted that the way their prices are derived is fundamentally flawed. No real market spread is constant, so adding a spread around the midpoint won’t necessarily arrive at a figure that is ‘attainable’ or ‘really exist’. The wider the underlying market spread (as normally happens at times of news releases, for instance), the greater the error. It follows that IG’s quotes are always skewed and inaccurate, which would probably be a basis for querying virtually every bet.


This bit is particularly amusing:

<< The underlying spread on the FTSE Futures being increased to 800 points is not a usual occurrence and, as prices made by IG are ultimately derived from the Underlying and reliant on price feeds, I do not believe that there was much, in the way of prevention, that IG could have done to prevent the matters that occurred.>>

So we are asked to believe that a multi-million pound company, the inventor of spread betting, no less, has suddenly realised that a volatile market will automatically result in the platform generating ‘manifest errors’? More likely that this is yet another crafty way IG minimises risk and maximises profit.

 

[stevespray]

I think we’re getting too bogged down in legal niceties here!

Reading through IG’s ‘explanation’ again, the whole thing comes across as complete bolleaux. Basically, they’ve admitted that the way their prices are derived is fundamentally flawed. No real market spread is constant, so adding a spread around the midpoint won’t necessarily arrive at a figure that is ‘attainable’ or ‘really exist’. The wider the underlying market spread (as normally happens at times of news releases, for instance), the greater the error. It follows that IG’s quotes are always skewed and inaccurate, which would probably be a basis for querying virtually every bet.


This bit is particularly amusing:

<< The underlying spread on the FTSE Futures being increased to 800 points is not a usual occurrence and, as prices made by IG are ultimately derived from the Underlying and reliant on price feeds, I do not believe that there was much, in the way of prevention, that IG could have done to prevent the matters that occurred.>>

So we are asked to believe that a multi-million pound company, the inventor of spread betting, no less, has suddenly realised that a volatile market will automatically result in the platform generating ‘manifest errors’? More likely that this is yet another crafty way IG minimises risk and maximises profit.

This appears to show clearly that, on this occasion, the firm in question have considered the validity of the clients trade after the trade is already open! That appears to place the client in a pretty powerful position. Consideration of the clients offer to trade must come prior to the issuing of trade confirmation / the contract note. A contract note is exactly that; a contract!

 

[gle101]

I think we’re getting too bogged down in legal niceties here!

Reading through IG’s ‘explanation’ again, the whole thing comes across as complete bolleaux. Basically, they’ve admitted that the way their prices are derived is fundamentally flawed. No real market spread is constant, so adding a spread around the midpoint won’t necessarily arrive at a figure that is ‘attainable’ or ‘really exist’. The wider the underlying market spread (as normally happens at times of news releases, for instance), the greater the error. It follows that IG’s quotes are always skewed and inaccurate, which would probably be a basis for querying virtually every bet.


This bit is particularly amusing:

<< The underlying spread on the FTSE Futures being increased to 800 points is not a usual occurrence and, as prices made by IG are ultimately derived from the Underlying and reliant on price feeds, I do not believe that there was much, in the way of prevention, that IG could have done to prevent the matters that occurred.>>

So we are asked to believe that a multi-million pound company, the inventor of spread betting, no less, has suddenly realised that a volatile market will automatically result in the platform generating ‘manifest errors’? More likely that this is yet another crafty way IG minimises risk and maximises profit.

The existence of the MiFID is not "legal niceties".

Yes I do question the validity of a 800 point spread on the underlaying asset. Fact is what it is all about, was the spread on the FTSE future (or a combination of index) really 800 points on that specific time? This should be very easy to find out. As far as I know other SB firms have not question the validity of the futures on that evening. "There have not been a correction from the exchange" is a quote I have read from a SB company.

The thread starter have to get the facts right to see if IG's statement is correct, as well as the trader who got the email from IG. This is two different traders as I understand it by reading the thread, or have I missed out on the facts.

 

[Jack Hughes]

The existence of the MiFID is not "legal niceties".

Yes I do question the validity of a 800 point spread on the underlaying asset. Fact is what it is all about, was the spread on the FTSE future (or a combination of index) really 800 points on that specific time? This should be very easy to find out. As far as I know other SB firms have not question the validity of the futures on that evening. "There have not been a correction from the exchange" is a quote I have read from a SB company.

The thread starter have to get the facts right to see if IG's statement is correct.

It would be interesting to know how IG derive their prices now they're aware that simply basing quotes on the mid point will result in manifest errors. The platform is still running, and we assume they wouldn't be deliberately giving out false information

 

[gle101]

It would be interesting to know how IG derive their prices now they're aware that simply basing quotes on the mid point will result in manifest errors. The platform is still running, and we assume they wouldn't be deliberately giving out false information

Yes, this is a good question. Here it goes again, according the the MiFID there has to be transparency and the firm have to give out information on how they derive their prices. I did ask CS this question a year back, it was no problem getting this information from them.

 

[tomorton]

Too much legal niceties. This as never real money made from the trade. If a firm cocks up without malicious intent various laws uphold their efforts to restore the situation to pre-****-up.

e.g.
your bank deposits a million quid into your account by mistake: you won't be able to keep it;
an antiques shop advertises a Stradivarius at £10: you can't force them to sell it to you at that price.

All regardless of T&C and MiFiD.

 

[gle101]

Too much legal niceties. This as never real money made from the trade. If a firm cocks up without malicious intent various laws uphold their efforts to restore the situation to pre-****-up.

e.g.
your bank deposits a million quid into your account by mistake: you won't be able to keep it;
an antiques shop advertises a Stradivarius at £10: you can't force them to sell it to you at that price.

All regardless of T&C and MiFiD.

Yes I agree, if it is an erroneous trade the SB have the right to revert the trade, but it must be a valid reason for this. When it comes to products such as electronics there have been cases when a company by mistake on a web site, entered a way too low price on a product. Still, they had to deliver the product at that price to the ones that ordered it. When it comes to SB products this scenario is not applicable as I see it.

 

[stevespray]

Personally I don’t think that this is specifically a MiFID issue as such. Trading hours for FTSE are generally regarded as 8am until 4.30pm. Anything outside of those times is generally regarded as ‘out of hours’ trading. Although LIFFE (the FTSE Futures exchange) is now open through until 9pm the market order book (Level 2) is generally very thin. It can hardly be described as ‘surprising’ when a sharp move in the US knocks out most of the levels which support price. This is the nature of trading out of hours and its happened loads of times before on similar markets. There are plenty of FTSE350 shares which can become pretty illiquid on a sharp move with the spread exceeding 10% of the shares value.

When people trade ‘out of hours’ they need to be aware of the dangers involved in that activity. That includes SB firms. I don’t just mean the clients here. The firms who quote FTSE, Dax and the like also need to be aware especially as their platforms quote markets with a maximum spread size. What happens for example when the spread on FTSE Futures is 100 points in the underlying whilst the various firms quote between 2 and 6 point spreads? How can the firms know where to pitch their fixed spread quotation within that 100 point gap? The answer is that they have to guess (or at least get a computer to guess for them!) You see, no one can predict the future before it occurs. If FTSE Futures carried on falling then their quotation would have suddenly become ‘the correct quote’. Instead it the market bounced and some buyers stepped in to support the price. Not surprising as that’s how markets work.

If a firm then decides to start cancelling certain trades surely it is guilty of just creating its quotation in hindsight? Surely, as market makers, the firms have to create their quotations in real time? That is the fundamental process of market making!

Of course what the SB Co’s could do is simply suspend their markets or widen the spreads. But on this occasion the firm in question decided to carry on offering its quotation. Again, by cancelling trades, a firm is attempting to ‘roll back history’ and pretend that it decided not to offer quotes.

I think that this might be more of a MiFID issue if there was a genuine pricing error during normal market hours when the market was liquid. This does not appear to be the case here. Instead it appears to simply be a case of freak market conditions.


Steve.

 

[stevespray]

Too much legal niceties. This as never real money made from the trade. If a firm cocks up without malicious intent various laws uphold their efforts to restore the situation to pre-****-up.

e.g.
your bank deposits a million quid into your account by mistake: you won't be able to keep it;
an antiques shop advertises a Stradivarius at £10: you can't force them to sell it to you at that price.

All regardless of T&C and MiFiD.

There are stark differences here....

1) If a bank puts a million quid in your account it is never legally yours. Simply having money in the account doesnt create a contract which justifies it being there.

2) You cannot force a shop to sell you anything at any price. However your comparison is not a complete one. If the shop sells you the violin and then, 30 seconds later, they realise their mistake there nothing that they can do - the violin is yours regardless of its perceived value.

 

[Xeno]

The existence of the MiFID is not "legal niceties".

Yes I do question the validity of a 800 point spread on the underlaying asset. Fact is what it is all about, was the spread on the FTSE future (or a combination of index) really 800 points on that specific time? This should be very easy to find out. As far as I know other SB firms have not question the validity of the futures on that evening. "There have not been a correction from the exchange" is a quote I have read from a SB company.

I don't know about the FTSE future, but looking at the US markets, the worst spread I think being the E-Mini S&P at 33 ticks (see below)

I'm not sure whether futures trades were broken, but certainly trades in securities and ETFs were (again, see below)

From the CTFC report

The securities exchanges and FINRA have adopted “clearly erroneous execution
rules” that are designed to permit them to cancel trades that in their determination were
clearly entered into in error.18 On May 6, under these rules, the SROs broke trades that
were effected from 2:40 p.m. to 3:00 p.m. at prices 60% away from the last trade at or
before 2:40 p.m.

[.....]
Until approximately 2:45 p.m., both spreads were at
their minimums, as is most often observed in this market. At 2:45:28 p.m., the best
bid/offer spread widened to 26 ticks (6.5 points). At this time, Globex Stop Logic
triggered a 5-second reserve state in the E-mini S&P 500 contract. Following the reserve
state, the first and fifth best quote spreads increased to the period maxima of
approximately 11 ticks (2.85 points) and 33 ticks (8.25 points), respectively.44 By
2:50:40 p.m., both spreads declined to about 1 and 9 ticks (0.25 and 2.25 points),
respectively.

 

[Jack Hughes]

Too much legal niceties. This as never real money made from the trade. If a firm cocks up without malicious intent various laws uphold their efforts to restore the situation to pre-****-up.

e.g.
your bank deposits a million quid into your account by mistake: you won't be able to keep it;
an antiques shop advertises a Stradivarius at £10: you can't force them to sell it to you at that price.

All regardless of T&C and MiFiD.

Not good examples! In the first case you have money that doesn't belong to you. In the second case, you can't force them to sell it to you, but if they accept your tenner it's just tough luck for them if they later discover they undervalued it and have fiddled (sorry) themself. The latter is more a parallel with what has happened with IG, except that they're only pretending they didn't know the ten quid violin might have been a Stradivarius!

 

[stevespray]

I don't know about the FTSE future, but looking at the US markets, the worst spread I think being the E-Mini S&P at 33 ticks (see below)

I'm not sure whether futures trades were broken, but certainly trades in securities and ETFs were (again, see below)

From the CTFC report

The securities exchanges and FINRA have adopted “clearly erroneous execution
rules” that are designed to permit them to cancel trades that in their determination were
clearly entered into in error.18 On May 6, under these rules, the SROs broke trades that
were effected from 2:40 p.m. to 3:00 p.m. at prices 60% away from the last trade at or
before 2:40 p.m.

[.....]
Until approximately 2:45 p.m., both spreads were at
their minimums, as is most often observed in this market. At 2:45:28 p.m., the best
bid/offer spread widened to 26 ticks (6.5 points). At this time, Globex Stop Logic
triggered a 5-second reserve state in the E-mini S&P 500 contract. Following the reserve
state, the first and fifth best quote spreads increased to the period maxima of
approximately 11 ticks (2.85 points) and 33 ticks (8.25 points), respectively.44 By
2:50:40 p.m., both spreads declined to about 1 and 9 ticks (0.25 and 2.25 points),
respectively.

60% is a huge move! that would be around 3,000 points on FTSE based ETF!

 

[gle101]

Personally I don’t think that this is specifically a MiFID issue as such. Trading hours for FTSE are generally regarded as 8am until 4.30pm. Anything outside of those times is generally regarded as ‘out of hours’ trading. Although LIFFE (the FTSE Futures exchange) is now open through until 9pm the market order book (Level 2) is generally very thin. It can hardly be described as ‘surprising’ when a sharp move in the US knocks out most of the levels which support price. This is the nature of trading out of hours and its happened loads of times before on similar markets. There are plenty of FTSE350 shares which can become pretty illiquid on a sharp move with the spread exceeding 10% of the shares value.

When people trade ‘out of hours’ they need to be aware of the dangers involved in that activity. That includes SB firms. I don’t just mean the clients here. The firms who quote FTSE, Dax and the like also need to be aware especially as their platforms quote markets with a maximum spread size. What happens for example when the spread on FTSE Futures is 100 points in the underlying whilst the various firms quote between 2 and 6 point spreads? How can the firms know where to pitch their fixed spread quotation within that 100 point gap? The answer is that they have to guess (or at least get a computer to guess for them!) You see, no one can predict the future before it occurs. If FTSE Futures carried on falling then their quotation would have suddenly become ‘the correct quote’. Instead it the market bounced and some buyers stepped in to support the price. Not surprising as that’s how markets work.

If a firm then decides to start cancelling certain trades surely it is guilty of just creating its quotation in hindsight? Surely, as market makers, the firms have to create their quotations in real time? That is the fundamental process of market making!

Of course what the SB Co’s could do is simply suspend their markets or widen the spreads. But on this occasion the firm in question decided to carry on offering its quotation. Again, by cancelling trades, a firm is attempting to ‘roll back history’ and pretend that it decided not to offer quotes.

I think that this might be more of a MiFID issue if there was a genuine pricing error during normal market hours when the market was liquid. This does not appear to be the case here. Instead it appears to simply be a case of freak market conditions.


Steve.

Some good points here Steve, but still, if the spread for a moment is so huge (I doubt though it is 800 points) they feel they need to revert the trades on basis of it being an erroneous trade. If they offer 1 point spread and suddenly the real market (underlaying asset) is over 100 points spread, I would say, in the light of MiFID it is definitely an erroneous trade. We all want the SB price to reflect the underlaying asset, you simply cannot have it both ways. If the aberration is small, you expect them to stick to their offer, but with this kind of mismatch it is free money and one can't expect them to give it to you.

 

[Xeno]

60% is a huge move! that would be around 3,000 points on FTSE based ETF!

Yes, but you have to remember that serious withdrawal of liquidity causes prices that bear no relation to value.


There were over 20,000 broken trades. Here's an example:

Bids for Accenture plc (ACN) rapidly declined in 7
seconds from about $30 at 2:47:47 p.m., to $0.01 by 2:47:54 p.m [..] Trades were being made at both the stub quote of $0.01 and the ask price of over $30
within the same second.

 

[stevespray]

Some good points here Steve, but still, if the spread for a moment is so huge (I doubt though it is 800 points) they feel they need to revert the trades on basis of it being an erroneous trade. If they offer 1 point spread and suddenly the real market (underlaying asset) is over 100 points spread, I would say, in the light of MiFID it is definitely an erroneous trade. We all want the SB price to reflect the underlaying asset, you simply cannot have it both ways. If the aberration is small, you expect them to stick to their offer, but with this kind of mismatch it is free money and one can't expect them to give it to you.

I disagree entirely!

It is only ‘free money’ in hindsight. At the time they quote a price they use all the information which is available to them at that moment in time in order to produce what they feel is the correct quotation. Even once a quotation is produced they do not have to accept trades if they feel that the price could be incorrect. The fact is that there is no way that anyone can say that a price is ‘correct’ or ‘incorrect’ in terms of quotations offered (in real time) because, technically, a price is ‘correct’ at the moment a buyer and a seller agree to transact. In this instance a firm agreed with a client to enter into a trade at a particular quoted price – in other words a buyer and a seller agreed to enter a contract at the quoted price. That in itself make the price ‘correct’ in some people’s eyes.

I cannot personally comment on how wide the spread went (in the underlying) at the moment in question as I was not trading at the time. If someone told me that it was between 10% and 20% of the index value then I would admit that it wasn’t something which happened very often but I would never say that it was something which has never happened before. A 10% to 20% spread in an illiquid market is NOT an unusual situation. ANY market can become illiquid given the correct conditions. And therefore anyone who deals in those markets (SB co’s included) has to bear this in mind as it’s clearly the nature of the business. Firms cannot claim, after the event, that they can cancel deals just because they failed to consider that a particular event might occur – it’s part of the associated risk in doing what they do.

Nothing in this thread so far changes the fact that the deal was entered into. As I keep saying, that is the pivotal issue here. If someone was alleging that “the firm quoted a price but wouldn’t let me trade” then that would be a completely different issue.

 

[gle101]

Yes, but you have to remember that serious withdrawal of liquidity causes prices that bear no relation to value.


There were over 20,000 broken trades. Here's an example:

Bids for Accenture plc (ACN) rapidly declined in 7
seconds from about $30 at 2:47:47 p.m., to $0.01 by 2:47:54 p.m [..] Trades were being made at both the stub quote of $0.01 and the ask price of over $30
within the same second.

Yes, thanks for the facts in this post and the other one (missed it earlier). Yes, as been expected, the spread was not as huge on the futures as been reported by IG. However one must first find out how IG derive their price quote on the FTSE during that period in time. Is it for the FTSE future only, or a combination of index. If it is for the later I can't see there could have been a spread of 800 points. If they calculate their prices solely on the FTSE future there could have been a liquidity vacuum that caused a huge spread. I am afraid one must get facts on which they based their algorithm. When one knows this one can have a look at the movement and spread of the underlaying asset.