Complaint Matter

Mr. XXX has lodged his complaint with the Financial Commission on the following grounds:

The Client used account # 72790 for active trading in the Forex market. According to the Client, on Mar 13, 2019, he funded his trading account with 2000 EUR and started trading. After making a profit in the series of trades taken in the period from Mar 13, 2019, to Mar 14, 2019, the Client found his account blocked by the Broker for violating their T&C.

The Client claims that the Broker accused him of trading at non-market prices by utilizing price discrepancies between the quotes published by the Broker and other providers of financial services.  The Client considers the actions of the Broker as incompetent and unfair. In connection with the above, the Client requests the Dispute Resolution Committee to check the disputed transactions and requires from the Broker to return the funds in the amount of 7626.57 EUR (initial deposit 2000 EUR + profit 5626.57 EUR).  The Client provided the screenshots of his trading account as documentary evidence.

In turn, the Broker does not see any grounds for the Client’s complaint and refers to clause 19 of the Service Agreement:

  1. OUTSIDE EXECUTION SYSTEM

Non authorized Automatic or semi-automatic trading mechanism integrated by the client on the browser or client side, that does not involve human execution, will be considered back door API or system abuse that may result to an account suspension and/or position cancellation.

In support of its decision, the Broker provided the history of all transactions performed by the Client, the server log records, as well as the supporting file that shows it has access to “proper pricing” from LPs, on which it is basing its arbitraging reasoning on.

Complainant Broker
XXX YYY
Financial Commission Complaint #ZZZ
Complaint Raising Date Complaint Filing Date
14/03/2019 20/03/2019
Complaint response:

The decision on this complaint is based on the information provided by the brokerage company YYY and Mr. XXX.

After a comprehensive analysis of the documentary evidence provided by the Client and the Broker the Dispute Resolution Committee of the Financial Commission has come to the following conclusions:

  1. First of all, it should be noted that in order to make a decision on this case the DRC has analyzed the Client’s trading activity in the account # 72790 and received the following results:
  • The Client conducted his trading operations from 11:49, Mar 13 to 21:55, Mar 14 (server time);
  • The Client used major currency pairs and stock indices for trading operations;
  • After 306 transactions the Client received a total profit in the amount of 12126.34 EUR;
  • Excluding commission of 6503.05 EUR, the Client’s net profit amounted to 5624.31 EUR;
  • The share of profitable transactions performed by the Client was 76.1% or 233 transactions;
  • The duration of the Client’s profitable transactions ranged from 1 to 10 seconds.
  1. According to the Broker, during the incident that occurred in the specified period, the Client identified a technical problem on the Broker’s side and implemented a strategy (Price Latency Arbitrage) aimed at making risk-free profits at the expense of quotes lagging behind the real market or, in other words, traded at non-market (non-existent) prices.
  2. The DRC has verified the validity of the Broker’s assertion regarding the Client’s use of the vulnerabilities of its technical equipment and software for profit. For this purpose, the DRC has examined the documentary evidence provided by the Broker, as well as the history of price data on the financial instruments in the disputed transactions, obtained from independent providers of financial services. Comparison of Broker quotes provided to the Client with quotes from independent sources showed that during the incident the quotes published by the Broker were slightly behind the real market.
  3. Based on the facts listed above, in the common opinion of the DRC members, it is highly likely that the Client used special technical means (high-frequency trading EA) exploiting vulnerabilities in the Broker’s quotation system.

According to the results of voting in the framework of this case there was an equal distribution of votes between the members of the DRC (both in favor of the Broker and in favor of the Client). Thus, due to the lack of opportunity to make a unanimous decision on this case, as well as taking into account the facts listed above, the members of the DRC have decided:

  1. Not to recognize the transactions disputed by the Broker as legitimate;
  2. Consider the cancellation of the financial results of this series of transactions by the Broker as lawful;
  3. Hold the Broker liable for the following points:

a) The Company must bear the proper but limited responsibility for the occurrence of technical problems in its trading system and belated reaction in their elimination;

b) The Company must be duly responsible for the untimely notification of the Client about the revealed violations of its trading rules;

с) The Company should formulate more clearly the provisions of regulatory documents concerning price latency arbitrage. As an example, the following wording could be recommended:

You consent that the Company reserves the right to immediately terminate your access to the trading platform(s) or Account(s) or refuse or cancel any order, in the event you voluntarily and/or involuntarily partake in arbitrage unrelated to market inefficiencies, including but not limited to, latency arbitrage and swap arbitrage and/or contrary to good faith; under such circumstances, the Company may at its discretion, close any of your Account(s) and recover any losses incurred from such practices.

Based on the above, the DRC of the Financial Commission has decided that reasonable compensation should be paid to the Client. Also, according to the general opinion of the DRC members, the Broker   should provide necessary measures for timely detection of such technical problems and their elimination in the future.

This complaint was reviewed by the members of the Dispute Resolution Committee of the Financial Commission and was processed by the Head of the Committee.

Ruled in Favor Compensation
Client 2812 EUR
If you have any questions regarding this investigation, please send them to the following address info@financialcommission.org
Acknowledgement
I certify that all information was considered by the Dispute Resolution Committee of the Financial Commission and hereby confirm that the decision was made fairly, impartially and without interference. I am confident that the information provided in the document is true.
Signature Designation Date
 Anatoly Bulanov

Head of DRC

26/04/2019