Brokers chasing you for negative account balance

If they even try to take a legal action against traders this will be long expensive and exhausting process revealing some confidential details from the broker's end so I think their actions will be limited to attempts of on-mouth settlements

this should be interesting to all Australian traders with negative balance:

there are responsible lending regulations associated with Margin lending.

http://www.fos.org.au/the-circular-5...dministration/

The Conduct Obligations require the FSP to:

1. make reasonable inquiries about a retail client’s financial situation (s985G(1)(a));
2. take reasonable steps to verify the retail client’s financial situation (s985G(1)(b)); and,
3. assess whether the margin lending facility will be unsuitable for the retail client (s985E(1)(c) and s985F).

and

Under the legislation (sections 985E & F), the assessment of whether a facility will be unsuitable for the client must:

1. be made within 90 days before the facility is issued, and
2. cover the period during which the facility is issued.

my advice to everybody with substantial negative balance: consult a lawyer!

Agreed.

Also I believe that any defense lawyer for retail traders can argue that the broker's losses were due to excessive leverage and poor risk management implementation (in other words, the broker not following their own advice they were giving clients about managing risk) Imagine having brokers explain why it is perfectly ok to have excessive high leverage when it gives them higher commissions, but it's not ok when greed for higher commissions causes massive losses that now should be covered by traders.

Add to that, the client agreements are not even a poor substitute for debt agreements, some lawyers have even said that it clearly violates consumer protection regulations in many countries.

IMO, there are so many obstacles and counter arguments that would need to be overcome that I can't see any legal action being taken through the courts. We may however see brokers trying to get quick titles for uncontested debt via legal means, but even these can be easily contested.

Hi Caa,

I stopped trading with Saxo over a year ago because I thought they were charging way too high commissions and markups on swap rates.

If it is ok, could you copy and paste Saxo's "formal demand for payment", you can leave out all account and personal information. Or maybe this is already pasted on some website like Leap Rate?

I would be very interested to see what they are writing to clients.

I read the latest update and it's a bit complicated. Basically everyone who had trades open on Jan 15th and 16th will have to wait for closing trades to be confirmed. Traders with no open positions on 15th or 16th will get statements first.

Now lawyers could have a field day with this one: if the broker can change closing prices (like Saxo did and what Alpari/KPMG are going to do) and put clients in a position of owing money, how does that not violate consumer credit laws?

Also, if I understood that monstrosity of a proposal document, the unsecured creditors (professional traders, liquidity providers and possibly FSCS) will get about a 66% haircut on the money owed. The costs for taking legal action (as well as the defense lawyers costs) to recover negative balances will have to be paid from this money and I can tell you that the lawyers on both sides will be VERY expensive, cases like this bring out the worst vultures, just look at KPMGs hourly rates! These 6 weeks alone ran up the legal and administrative costs up to 2 MGBP!!!! At this rate, the legal costs would be greater than all the money unsecured creditors would get within a few months and the same creditors would need to put up more money. I can't see creditors risking millions on flimsy client agreements with very low chance of winning debt titles in courts.

Let me put it this way:
If it were me that was going to get sued for negative balance recovery, I am pretty sure I could get my company's law firm and all 500 of its lawyers to take this case of defending my interests with no costs to me but tacking on huge costs to the other party because my law firm would see a massive payday opportunity. I'm pretty sure the other side would actually run out of money first before the court cases are even finished.

But again, please do not take this as legal advice, it's just my opinion.

Yes, this is exactly what I was referring to in my previous post about "suitability" and I think it can be argued that if a retail trader ends up with a negative balance, then the financial instruments were NOT suitable and the broker can't sue without violating these regulations and losing their license to operate.

Again, just my opinion and everyone should follow Billy's advice: Consult a lawyer

in addition to the suitability it may be significant that brokers usually 1) check the financial circumstances of the clients upon account opening but do not make any verification of the financial status and 2) that these data are in most cases outdated, often many years old.

Thus, potential violation of regulation on the whole front!

Touché!

Excellent point!

Just a small correction: Not 6, but 4 weeks! (19/01/2015 to 13/02/2015)

Now we just have to find similar protection rules for European clients!

Trust the UK not to have anything in place though

These same rules are in place both for the EU as well as the UK.

Hi Silver....sorry mate, been googling all day. Can you send me a link pls?

"
If SNB made a crisis on January 15, 2015, then Saxo Bank made itself (and its clients) a bigger crisis on the day.

From another page:

http://www.garp.org/risk-news-and-re...?newsId=129462


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Ada Reynolds 3/2/2015 9:17:13 PM

Fellow GARPs, this Saxo Bank crisis should be well documented as a case study. From risk management prospective, Saxo Bank committed a big mistake.

1. In its FX business, Saxo Bank makes prices to clients on FX spot, forward and options. That means Saxo Bank is having a principal-to-principal relationship with clients. On their trading platform, the prices are all tradable, and it forms an "offer". Once the trade is executed on the trading platform, via clients' action, or orders triggered, that constitutes an "acceptance". With "offer" and "acceptance", that is a contract sealed. For whatever reason that one side manipulate the details of the transaction (here it is price), it is a breach of contract. The new price of the contract has no legal power to be enforced because the content is not mutually agreed.

2. In its letter explaining the methodology of the “re-pricing”, Saxo Bank is confusing itself as an agent. In this business, Saxo Bank is actually the sole market maker from clients’ perspective. There are no other markets. If Saxo Bank explains its methodology with reference to EBS, the client agreements have to be re-written that Saxo Bank acts as an agent and all trade flows (spot and forward) goes to EBS (and Saxo Bank bears no responsibility on the fills), and each and every trade confirmation with EBS has to be sent to clients. However, it still cannot solve Saxo Bank’s problems in options because it cannot find a sizable marketplace for options similar to EBS.

3. The key problem of Saxo Bank is its risk control on pricing. As a market maker, Saxo Bank has full discretion to quote a price on its trading platform. The bid price it quote to clients is the price Saxo Bank willing to buy from clients, and the ask price it quote to clients is the price Saxo Bank willing to sell to clients. Therefore, always, Saxo Bank should display a price that it is willing to do buy and sell (for this part the Trading department takes the blame, then the Risk Management department). It cannot first quote clients a price and then twelve hours later tell clients that, sorry, we are going to change your transacted price to another price blah blah blah.

4. Another highlight of the incidence, from a risk management perspective, is how Saxo Bank manages its FX exposure. If clients are selling CHF, to avoid depreciation of the CHF, Saxo Bank should have shorted a certain amount of CHF with its own trading counterparties. Did Saxo Bank get out of its hedge positions before it cut clients’ margin positions? Would it be possible that Saxo Bank got hit by betting bigger than clients and then transferred the losses to clients by manipulating clients’ positions?

Ada Reynolds 3/2/2015 9:35:14 PM

Another key study in the Saxo Bank crisis is how we look at Counterparty risk. Saxo Bank does trade with another entity in order to hedge its exposure from clients. Is Saxo Bank evaluating its trading counterparties sufficiently? Would anyone of them dishonored trades with them (same way as they do to clients)? Is the contract terms able to protect Saxo Bank from being dishonored on trades which they can profit from? Besides counterparty risk, how about liquidity risk? Did Saxo Bank has a too big concentration exposure on CHF (compare to the potential liquidity that is available) such that it cannot hedge its own exposure in good prices? With Saxo Bank claiming low liquidity in the EURCHF pair, do they have a plan to trade USDCHF and EURUSD separately?
"

Under UK COBS.....in the suitability requirement section....I quote

(3) The information regarding the financial situation of a client must include, where relevant, information on the source and extent of his regular income, his assets, including liquid assets, investments and real property, and his regular financial commitments.

For those that have received a demand letter/email from IG Index, they ask you to pay the full amount or for a payment plan request information on income, bank statements, investments, etc. Do you think they are carrying out a suitability requirement now....after the event?

Hey mate, here's some helpful websites that I used when doing research:

1. Start by googling "A Consumer's guide to MiFIDW" and download the pdf
2. Here are some websites with great information (Warning: this is not light reading)
   1. www.esma.europa.eu - look in particular under "Investor protection and Intermediaries"
   2. fca.org.uk
   3. eur-lex.europa.eu - tons of information from actual court cases, suggest search with terms like "retail investor", "retail investor protection", "derivative retail investment", etc (without quotes)

Hope it helps.

Great, thanks for taking the time to post this. I will share this with the group.....hopefully spread the reading!

Does this mean the FCA are listening now?

http://uk.reuters.com/article/2015/0...0M11AX20150305

nice thread! will be reading more of this. need to learn a thing or two, just in case i encounter this situation

Doh!!!

Thanks for catching that!

Even better @ 2 MGBP in 4 weeks!!! Wow, 500 KGBP per week, I'm definitely in the wrong business!

Come on Reuters....keep the stories rolling

http://uk.reuters.com/article/2015/0...0W63U120150305