IGindex requoted already closed trade?!

[silverroad5]

Hi guys, I happened to short ftse100 out of market hours - using IGindex SB account just when it fell to around 4420. I gained about 500 quid on that trade in about 5 seconds. Here's the catch, IGindex took money earned on that trade from my account in form of a 'cash correction' this morning.
When I called them and asked for the explanation, they said that market went crazy yday, prices weren't real and its only fair if they cancelled all the transactions (after they have been closed).
They also mentioned that they refunded guys who incurred a loss as well on that trade. So 1) what do you think about this practice? (considering the very nature of the SB business and quote system they provide)
2) have any of you guys who traded at the time got similar experience?

Hi There,

I too had an open position last night on the dow-my stop was 80 points from the close-as the market re-opened i was apparently stopped out-the market was below my stop for 3-4 seconds yet on my statement the time the stop was executed was 10 minutes later when the price had pretty much returned to the closing levels-(it was back up there about 15-20 secs after the restart)--IGINDEX Just said tough-

 

[gle101]

I don't really see it as a conspiracy, more that a highly profitable and successful business uses a system that protects itself against unusual market moves. It's crafty because they know the quotes are going to be skewed and have the luxury of waiting to see what happens, then retrospectively deciding whether it suits them to renege on trades. If only the punters had the same option!

As Steve mentioned, what would have happened if a 'real' trade had gone through at the low end of the spread (does anyone have access to the FTSE fut data)?

It can't go through at the low end of the spread, because they are calculating on "fair value", so you have an aberration of 400 points compared to the quote from IG (if the real future spread is 800 points). This huge aberration makes it an erroneous trade in my book. If you are lucky some SB might let you get away with it, but you can't really be upset if they revert the trade. Steve's assumption that a SB trade is a contract that under all circumstances is valid, does not correspond to my understanding of rules and regulations for the SB industry, it is just wishful thinking.

 

[Jack Hughes]

It can't go through at the low end of the spread, because they are calculating on "fair value", so you have an aberration of 400 points compared to the quote from the IG (if the real future spread is 800 points). This huge aberration makes it an erroneous trade in my book. If you are lucky some SB might let you get away with it, but you can't really be upset if they revert the trade. Steve assumption that a SB trade is a contract that under all circumstances is valid, does not correspond to my understanding of rules and regulations for the SB industry, it is just wishful thinking.

Don't follow. Why can't a trade have gone through at the low end of the spread? If that's the highest bid because the rest have all disappeared, and it's accepted, then that's its value. Isn't that how markets work?

 

[Jack Hughes]

Hi There,

I too had an open position last night on the dow-my stop was 80 points from the close-as the market re-opened i was apparently stopped out-the market was below my stop for 3-4 seconds yet on my statement the time the stop was executed was 10 minutes later when the price had pretty much returned to the closing levels-(it was back up there about 15-20 secs after the restart)--IGINDEX Just said tough-

It's simple; they waited to see what happened, then closed your trade at what turned out to be the worst level for you.

 

[Xeno]

Hi There,

I too had an open position last night on the dow-my stop was 80 points from the close-as the market re-opened i was apparently stopped out-the market was below my stop for 3-4 seconds yet on my statement the time the stop was executed was 10 minutes later when the price had pretty much returned to the closing levels-(it was back up there about 15-20 secs after the restart)--IGINDEX Just said tough-

Ask them to explain why the time was ten mins later. That apart, I don't see what the problem is. The dow is rather volatile, and opening of a market like that often involves wild swings and wide spreads. I think that's something you have to be aware of when keeping positions over a market close.

 

[silverroad5]

It's simple; they waited to see what happened, then closed your trade at what turned out to be the worst level for you.

which seems to be the case-but then why cant winning trades stand

 

[Xeno]

It can't go through at the low end of the spread, because they are calculating on "fair value", so you have an aberration of 400 points compared to the quote from IG (if the real future spread is 800 points). This huge aberration makes it an erroneous trade in my book. If you are lucky some SB might let you get away with it, but you can't really be upset if they revert the trade. Steve's assumption that a SB trade is a contract that under all circumstances is valid, does not correspond to my understanding of rules and regulations for the SB industry, it is just wishful thinking.

Right, I've had a look at the FTSE futures data for the day. From 19:30 UK time, the spread builds to about 5-20 points. Then quite rapidly, at 19:46:14, the bid/ask does indeed read 4001/4840. 13 seconds later it was 4750/4840.

As I said earlier, I see manifest error as meaning our systems aren't great and this is a cover all. However, playing devil's advocate somewhat, markets try and stay open, for reasons which I guess are related to the fairness of providing liquidity all the times the market is open. It's good that IG also try to do that. However, in cases where your price is clearly way out (and yes, I understand the argument about a price is what the bid/ask is) then the real market has a policy of breaking all trades based on that price to maintain fairness. It seems that IG is just trying to do that.

We should want that shouldn't we? I assume that most SBers don't spend all their days waiting for just this sort of aberation to jump in and buy, so most of us are sitting on proper positions. Given that one jump down hundreds of points past your stop could wipe out much of your equity, wouldn't you rather know that the broker will break that trade and in return give up the small chance of taking large amounts of what has reasonably been termed 'free money'. Surely we'd prefer our trades to not be subject to that sort of risk and volatility?

 

[gle101]

With all due respect none of my points are based on ‘conspiracy thinking’! Instead I am simply setting out and discussing the law and the terms of the Customer Agreements as I see them.

You keep using phrases like ‘non correlated quote’ which I feel is highly subjective. In my opinion if the price in the underlying is 4000 bid / 4800 ask and a SB firm decides to quote a price (on a fixed 1 point spread) which is between 4000 and 4800 then the price IS directly correlated and it is hard to argue that it’s not. You seem to be trying to promote this argument. Sorry to keep repeating myself here but the fact are those firms quoting one and two point spreads are often going to find themselves offering quotations well inside the spread in the underlying. You see to keep ducking this issue in replies.

I should also point out the old stock market adage that ‘a stock is only worth what someone else is prepared to pay for it’ – in this instance if the best bid on FTSE was only 4,000 then, at that moment in time, that is technically all it was worth. It’s also worth bearing in mind that if someone would have left a stop order with a direct access broker (at around 4000) then this may have got triggered as well. Interesting to see how this argument would shape up if time and sales actually showed a transaction at around 4,000 on the underlying.

Just as an aside, what is your view of the situation on days when FTSE gaps the SB quotes at the 8am open? By that I mean what about the days when between 7am and 8am the SB Co’s quote a particular price only to see the price jump 50 points (I’ve been trading FTSE for many years so I’ve seen this loads)? Making the correct price for FTSE is not an exact science by any means. What should happen when the SB Co’s get it wrong for an hour or so before 8am? Should those bets be reversed since the quotes provided clearly fall outside the quotation eventually seen in the underlying?

Steve.

Well, in fact my post was directed at another poster. Yes it is alright, but what is the use of having a discussion on the user agreement if you leave out the MiFID, which in fact have more bearing.

There are two factors one must look at. The movement of the SB must reflect the movement of the underlaying asset, the underlaying asset spread should be in level of that of the SB quote (despite of what is stated in the T&C), otherwise there is a mismatch of price. Most of the time there is an small aberration in both these, but this is something to expected due to a fixed spread. The correlation I am referring to is twofold, if either of these or both is not correlated at all (e.g 400 points), there is an obvious mismatch between the SB quote and the underlaying asset. I hope by this you accept my explanation of the word "correlated".

It is my viewpoint that off hours the FTSE quote is valid (if the underlaying index or a combination of index which it is based upon is correlated with this quote) and they should stick to the validity of this trade, whatever level the FTSE future shows at the opening. But there can be some restriction in size due to the uncertainty of the opening level of the FTSE future.

 

[gle101]

Right, I've had a look at the FTSE futures data for the day. From 19:30 UK time, the spread builds to about 5-20 points. Then quite rapidly, at 19:46:14, the bid/ask does indeed read 4001/4840. 13 seconds later it was 4750/4840.

As I said earlier, I see manifest error as meaning our systems aren't great and this is a cover all. However, playing devil's advocate somewhat, markets try and stay open, for reasons which I guess are related to the fairness of providing liquidity all the times the market is open. It's good that IG also try to do that. However, in cases where your price is clearly way out (and yes, I understand the argument about a price is what the bid/ask is) then the real market has a policy of breaking all trades based on that price to maintain fairness. It seems that IG is just trying to do that.

We should want that shouldn't we? I assume that most SBers don't spend all their days waiting for just this sort of aberation to jump in and buy, so most of us are sitting on proper positions. Given that one jump down hundreds of points past your stop could wipe out much of your equity, wouldn't you rather know that the broker will break that trade and in return give up the small chance of taking large amounts of what has reasonably been termed 'free money'. Surely we'd prefer our trades to not be subject to that sort of risk and volatility?

Thanks, interesting facts. I couldn't agree with you more.

 

[Jack Hughes]

Right, I've had a look at the FTSE futures data for the day. From 19:30 UK time, the spread builds to about 5-20 points. Then quite rapidly, at 19:46:14, the bid/ask does indeed read 4001/4840. 13 seconds later it was 4750/4840.

Interesting - what were the actual trades at that time?

 

[stevespray]

Okay, given the last few posts there are a number of points that I would like to raise. Obviously I am playing devil’s advocate to some extent but I want to get people thinking about what has been written so far.

If we take FTSE as an example we know when the main trading hours occur and we know when volume tails off and the FTSE Futures market is more likely to become illiquid. This illiquidity occurs mainly due to the fact that the main London market (shares) is closed and as such a lack of normal market activity ensues. They say that about 80% of all trading volume is of an arbitrage or hedging nature and thus once there is nothing to hedge (as the share market is closed) volumes and general interest in the FTSE Future instrument dries up.

Now, if anyone ever takes the time to examine FTSE Futures after hours (say beyond 5.30pm London time) they would notice that the market is generally pretty thin in terms of the order book. Even with the US market pretty flat it’s not unusual to see a spread of 3 or 4 whole point between the bid and ask. Trade any kind of volume (maybe 5 lots or more) and you can add maybe 2 or 3 more points to the bid/ask spread at times. So basically it suddenly makes more sense to use a liquidity provider like a SB or CFD Co especially if they, like they are at the moment, are happy to offer a fixed spread. This obviously leads to an interesting situation. My guess is that more money passes through these ‘off exchange’ type trades than actually passes through LIFFE (the FTSE Futures exchange) during these after-hours periods. I’m sure people can see now where I’m going with this? What happens when more volume passes through these external markets than through the exchange itself? Remember that the SB Co’s are supposed to base their price on the underlying – suddenly the tail is wagging the dog? On that basis questions can be raised about the underlying and the apparent need (according to ‘gle’) for the firms to have to follow the underlying so closely. Why follow the underlying when more business could be passing outside of it?

To be honest I am far from sure about this directive about the firms having to track the underlying so closely. As one of my associates pointed out (he’s legally trained), FSA regulated firms have a duty of care when preparing documents to ensure that what is stated fits into the framework of other laws which also prevail. This includes Customer Agreements which are covered by FSA regulations regarding ‘Misleading Documents’. In other words, FSA regulated companies should not place terms or conditions in the agreements which could mislead either clients or potential clients. Normally Customer Agreements are written within the existing framework. So I have to question somewhat the fact that IGs T&Cs (and several other firms) specifically state that their quote doesn’t have to track the underlying market in such an exact manner as implied by gle’s interpretation of MiFID. Someone is clearly wrong somewhere!

I also don’t buy this opinion that a firm can just cancel a trade. My friend is of the same opinion. He immediately used the ‘mispriced item in a shop’ analogy. I played devil’s advocate and asked “What if the price was obviously wrong?” I’m afraid I got short thrift, if you spot an apparent bargain and the shop accept your offer to trade (buy) then the item is yours no matter how obvious the error. It’s up to the shop to decide whether it wishes to conduct business at the price which you offer. The situation with a spreadbet appears identical given that title to the bet in question passes to you at the moment that they accept the deal. They cannot reverse the trade for two reasons; firstly the contract is already formed, and secondly it would take the agreement of BOTH parties to enter a second deal reversing the first.

It would be really interesting if one of these disputes came to court. Personally I don’t think that any firm would let that happen. The risk of them losing would be too great.

 

[Xeno]

Interesting - what were the actual trades at that time?

Very few. I suspect trading was suspended or some were broken.

Most trades were at the ask, with the last one before the super wide spread being

19:46:14 4809.5

then a large pause, then,

19:46:57 4820 (about four of them)

then

19:47:29 4820.5

then large volumes to take it back steadily up to 5000 by about 19:55. The spread was still at least 4 for most of that.

 

[Xeno]

I also don’t buy this opinion that a firm can just cancel a trade. My friend is of the same opinion. He immediately used the ‘mispriced item in a shop’ analogy. I played devil’s advocate and asked “What if the price was obviously wrong?” I’m afraid I got short thrift, if you spot an apparent bargain and the shop accept your offer to trade (buy) then the item is yours no matter how obvious the error. It’s up to the shop to decide whether it wishes to conduct business at the price which you offer. The situation with a spreadbet appears identical given that title to the bet in question passes to you at the moment that they accept the deal. They cannot reverse the trade for two reasons; firstly the contract is already formed, and secondly it would take the agreement of BOTH parties to enter a second deal reversing the first.

Let me 'enhance' your analogy. You go into a shop to buy something. The shop has a big sign on the door saying that prices on the items are constantly changing based on the real time price of sugar, and that to protect both sides, any deals concluded based on clearly erroneous prices will be reversed. You have an account with the shop, no money changes hands, and the item is to be delivered. You leave the shop having signed a bit of paper saying you bought the item, and agree to the terms and conditions.

Just food for thought. I would love it to go to court too...

 

[stevespray]

Let me 'enhance' your analogy. You go into a shop to buy something. The shop has a big sign on the door saying that prices on the items are constantly changing based on the real time price of sugar, and that to protect both sides, any deals concluded based on clearly erroneous prices will be reversed. You have an account with the shop, no money changes hands, and the item is to be delivered. You leave the shop having signed a bit of paper saying you bought the item, and agree to the terms and conditions.

Just food for thought. I would love it to go to court too...

That's an easy one.... first term law...

The shop wouldnt be able to place such terms and conditions (relating to 'clearly erroneous prices') in their terms of sale - It's against the law to do that as it is an infingement of what is known as 'statutory rights'. You have a statutory right to know the point that you have entered a contract (and therefore the moment from which the contract becomes binding).

In this instance you're suggesting that the shop holds all the trump cards but they don't if push comes to shove. If they agreed a price with you (even if it was erroneous) they would be in breach of contract if they failed to deliver the item in question. They'd be foolish to do that as you could charge them costs the longer the dispute went on.

Read this....

http://whatconsumer.co.uk/what-are-my-statutory-rights/

 

[Xeno]

That's an easy one.... first term law...

The shop wouldnt be able to place such terms and conditions (relating to 'clearly erroneous prices') in their terms of sale - It's against the law to do that as it is an

http://whatconsumer.co.uk/what-are-my-statutory-rights/

Actually I meant to mention that I know they're not allowed to do that. My main point was to show that the analogies are not necessarily that close, because, contract law apart, there are different laws and regulation bodies involved. For a start, SB does not involve a purchase, and legally, it's close to betting, which I believe can also involve cancels for errors?

 

[stevespray]

I disagree – Sbing and CFD trading involves the purchasing and selling of contracts. That is a legal definition set out in the Financial Services and Markets Act of 2000. I used to know which section but it’s a long time since I’ve had call to use it!! LOL I’m sure you can find it.

You are correct about betting in the non financial markets – these are nothing more than gentlemen’s agreements and no one is legal obliged to pay up and as such bets can be cancelled with no real ramifications.

Statutory rights apply across the board especially if you are classed as a ‘consumer’. Someone who spreadbets (even professionally) would still be regarded as a consumer. There’s nothing that any firm can write in their T&Cs which can circumvent statutory rights or consumer laws.

 

[Xeno]

I didn't think it was like that. I thought the whole point of SB compared to CFDs is that CFDs you legally buy a contract whereas SB you bet on a price. I may well have that wrong though. As an aside, if SBing is legally buying and selling contracts then you should be allowed to offset losses against capital gains tax ;-)

It seems likely that canceled trades are legal in the real market, since I've never heard of anyone suing to get one re-instated. And we'd be talking lots of money if you could...

 

[stevespray]

One firm (not IG) once cancelled an overnight bet I did on the German Dax. They failed to notify me and I only found out about it when I was checking my account statement some weeks later. I approached them and informed them about the 'error' on my statement. They said that they'd cancelled the bet and adjusted my account accordingly as they felt that the price quoted was incorrect (their quote had drifted some way from a couple of other comparable quotes). I specified that I was not accepting the alteration as I had contract notes for the sale. A couple of weeks of emails went back and forth as the matter esculated to compliance level. Compliance said that they were withing their rights to cancel any bet retrospectively and specified that they would not enter into any further communication on the matter. I sent them a recorded delivery specifying that court action would start on the Monday morning if the funds were not returned to my account by 5pm that Friday and that I would enter into no further communications with them and that I would be charging them legal fees if I started legal proceedings before the paid up (in other words it was going to cost them if they waited for the summons). Under the pressure the wilted and returned the funds to me.

 

[gle101]

I didn't think it was like that. I thought the whole point of SB compared to CFDs is that CFDs you legally buy a contract whereas SB you bet on a price. I may well have that wrong though. As an aside, if SBing is legally buying and selling contracts then you should be allowed to offset losses against capital gains tax ;-)

It seems likely that canceled trades are legal in the real market, since I've never heard of anyone suing to get one re-instated. And we'd be talking lots of money if you could...

Good and valid points, beware of Steve though, he has a convincing way of speaking for his case.

Really it wouldn't have mattered anyway, if SB would be categorized as financial instruments and therefor not gambling, the erroneous trade would still according to the MiFID be viable for correction.

 

[Xeno]

One firm (not IG) once cancelled an overnight bet I did on the German Dax. They failed to notify me and I only found out about it when I was checking my account statement some weeks later. I approached them and informed them about the 'error' on my statement. They said that they'd cancelled the bet and adjusted my account accordingly as they felt that the price quoted was incorrect (their quote had drifted some way from a couple of other comparable quotes). I specified that I was not accepting the alteration as I had contract notes for the sale. A couple of weeks of emails went back and forth as the matter esculated to compliance level. Compliance said that they were withing their rights to cancel any bet retrospectively and specified that they would not enter into any further communication on the matter. I sent them a recorded delivery specifying that court action would start on the Monday morning if the funds were not returned to my account by 5pm that Friday and that I would enter into no further communications with them and that I would be charging them legal fees if I started legal proceedings before the paid up (in other words it was going to cost them if they waited for the summons). Under the pressure the wilted and returned the funds to me.

Good for you ;-) I would have done the same, since it's not a manifest error. (by the way, it was only going to cost them if they lost ;-)

As another aside, I admire your ability to put a trade on and then not check it for weeks. Must make letting your profits run much easier ....