Client agreement and PDS issues

From the Customer Agreement of FXDD Malta:

9. CUSTOMERS’ MONIES
When a Customer deposits money with FXDD this will generally be segregated from FXDD’s
money in accordance with applicable MFSA rules and regulations on protection of Customers’
money, except when such money is held by FXDD in respect of margin requirements. Customer
acknowledges that the holding of money in a segregated Customer account may not provide
complete protection.

All Customer monies will be held in a Clients’ account held with an authorized credit institution or
bank situated in Malta or the United States. The Customer’s rights may be affected, or even
prejudiced, depending on the jurisdiction in which such Customers’ monies are held.

Customer acknowledges and agrees that no interest shall accrue in favour of Customer on any
deposit/s and/or any other asset/s that Customer may hold with FXDD.

When a Customer undertakes one or more Contract/s with FXDD at any particular time, any
money held by FXDD will be transferred to FXDD to secure Customer’s actual or potential
obligations towards FXDD as counter-party in respect of such Contract/s, at which stage and for
the duration of any pending Contract/s that the particular Customer may have with FXDD such
money will not be segregated from FXDD’s money and the particular Customer will rank as a
general creditor of FXDD.

The Customer accepts and hereby authorises FXDD to effect withdrawals from the Customer’s
Account with FXDD as may be required in order to settle any charges and/or fees that may
become due by the Customer to FXDD from time to time.

Also in this contract I have highlighted the frases that are extreme important.

1. What do MFSA rules say regarding customer funds? Did you read the MFSA ruling?

So the question is does these rules give me any kind of guaranty.

2. .... in respect of margin requirements. Are these ONLY the margin requirement for the clients transactions or the margin requirements of the broker ? That not specified in here.

3. Where are the funds ? Malta or US ? In case shit hits the fan, can they switch funds from one account into another, without prior aknowledgement of the client and what does it mean for the clients funds.

4. As soon as one starts trading, ALL your funds are out of segregated funds and therefor are at risk.

It is impresive the way they take care of the money with IB.

Unfortunately it does not say anything on how they HANDLE your funds that do not oblige to most of these regulations, since this is OTC and NOT the regulated stockmarket trading.

there must be other terms in the contract that DO say something on how they HANDLE your funds .

Insolvency
2.13. The Company’s insolvency or default, may lead to positions being liquidated or closed out without your consent. In certain circumstances, you may not get back the actual assets which you lodged as collateral and you may have to accept any available payments in cash.

2.14. Segregated Funds will be subject to the protections conferred by the FSA's Client Money Rules.

2.15. Non-segregated Funds will not be subject to the protections conferred by the FSA's Client Money Rules. Non-segregated Funds will not be segregated from the Company’s money and will be used in the course of the Company’s business, and in the event of the Company’s insolvency you will rank as a general creditor.


6. Customer money
6.1. Relevant Amounts held on the Trading Account (“Segregated Funds”) will be segregated by the Company and held in accordance with FSA client money rules..

6.2. All other amounts will not be segregated and , the Customer has agreed that full title to, and ownership of, Non-segregated Funds has been transferred by the Customer to the Company or otherwise passed to the Company for the purpose of securing or otherwise covering the Customer’s present or future, actual or contingent or prospective obligations: such amounts do not constitute and shall not at any time be deemed to constitute client money for purposes of the FSA Rules and the Customer agrees that the Company can deal with this money on its own right and the Customer will no longer have a proprietary claim over this money until an equivalent transfer is made back to the Customer or if the provision of collateral by the Customer is no longer necessary.
Non-segregated Funds will not be segregated from the Company’s money and in the event of the Company’s insolvency the Customer will rank as a general creditor of the Company.

6.3. The Company shall not be obliged to pay interest to the Customer on any funds which the Company holds. The Customer waives all rights to interest.

6.4. The Company will promptly place any Segregated Funds held on the Customer’s behalf and not transferred to or held for the Company, into a Segregated Account (subject to FSA Rules and Permissions).

6.5. Unless the Customer has notified the Company in writing to the contrary, the Company may hold Segregated Funds on the Customer’s behalf in a Segregated Account located outside the United Kingdom or pass money held on the Customer’s behalf to an intermediate broker, settlement agent or OTC counterparty located outside the United Kingdom. The legal and regulatory regime applying to any such person will be different from that of the United Kingdom and in the event of the insolvency or any other equivalent failure of that person, the Customer’s money may be treated differently from the treatment which would apply if the money was held in a Segregated Account in the United Kingdom. The Company will not be liable for the solvency, acts or omissions of any third party referred to in this clause.

6.6. The Customer agrees that, in the event that there has been no movement on the Customer’s Trading Account Balance for a period of at least six years (notwithstanding any payments or receipts of charges, interest or similar items) and the Company is unable to trace the Customer despite having taken reasonable steps to do so, the Company may release any Customer’s money balances from the Segregated Account.

6.7. The Company is covered by the Financial Services Compensation Scheme (FSCS). The Customer may be entitled to compensation from the scheme if the Company cannot meet its obligations. The Financial Services Compensation Scheme may be contacted by writing to the Financial Services Compensation Scheme, 5th Floor, Lloyds Chambers, Portsoken Street, London, E1
Customer Agreement Copyright 2004-2010 Alpari (UK) Limited Page 4/32
Version May 2010
8BN, or by emailing them at the email address provided on the Financial Services Compensation Scheme website at www.fscs.org.uk.

6.8. The Company will carry out reconciliations of records and Segregated Funds with the records and accounts of the money the Company holds in Segregated Accounts on a daily basis, and any required transfer to or from the Segregated Account will take place by the close of business on the day that the reconciliation is performed. The Company reserves the right to carry out such reconciliations and transfers more frequently, should the Company reasonably consider that this is necessary to protect the Company’s or a Customer’s interests.

From the Alpari.co.uk Discussion thread post #264:

We would like to take this opportunity to announce that from 18th March 2009, we began to offer 100% segregation for all clients. The only condition is that only free margin will be segregated. Essentially this means that if you are not in a trade, 100% of your capital will be segregated as client funds making it completely safe in case of Alpari’s bankruptcy.

In addition to this, our clients are free to apply for the Financial Services Compensation Scheme (FSCS) which is an independent scheme designed to pay back clients of FSA regulated firms up to £48,000 in case of financial difficulties.

At first glance one would say that sufficient guarantees are given to the client.

However some of the frases are a little shady. Definitions should be in place there.

e.g.

....Will be used in the course of the Company’s business,....

What business,...... they are brokers and speculate aswell, don't they?

...relevant amounts ..... how much is relevant and who decides on the amount?

6.5 is extreme important.
As a client you will have no knowledge of any handling of the segregated accounts. What if they screw up here?

They are NOT LIABLE ?

Be aware that this term is specific dealing with the so called " segregated account" that should give you as client some security.

Agreed.

Transparency should also mean that legally required disclosure documents are not obscure or filled with complicated legalese. They should be fairly easy to understand by a person of average education and understanding of that language.

Writing such a document at a level that in itself requires a law degree, is not being transparent. Rather, it would appear that it is designed to obscure, rather than reveal true intent.

In that case, the regulatory-required document becomes part of the deception and not the clarifying communication needed.

This allows the creator of the document to later say to the clueless and confused customer, "But I told you that if I got into trouble, I was going to take all of YOUR money to help bail ME out!"

That is not transparency.

In reviewing this new thread, it occurs to me that in our efforts to explore the finer points of our area of discussion, the new person here may be confused by some terminology or acronyms that get tossed out as if everyone is supposed to know what they mean.

The acronym PDS in the thread title for example stands for Product Disclosure Statement.

Strait to the point !!!

Let' s see if other traders have the same opion and join this discussion.

BTW thanks for the explanation on PDS. one easily forgets others might not have seen the connection.

regards