Customer Complaint Dated October 17th 2023

The Financial Commission / Case Examples / Customer Complaint Dated October 17th 2023

Complaint Matter

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

The Client used account # XXX (EUR) for active operations with the financial instruments of the FX market. On May 22, 2023, the Client funded his trading account with 1500 EUR and started trading operations. By the time of the incident, the Client has made profits in the amount of 19905.52 EUR and successfully withdrawn 2094.73 EUR from the specified account.

The incident on the Client’s account occurred on July 27, 2023, i.e., on the day when the Broker performed a Cash Adjustment operation on the Client’s trading account and cancelled the Client’s request for withdrawal of funds in the amount of 301.58 EUR, claiming that the Client’s account was disabled for violation of the trading rules established by the Company. The Client indicates that the Broker has blocked his account for no apparent reason, since in the Client’s opinion, none of the Broker’s rules has been violated. According to the Client, the Broker does not let him withdraw profits, that, in the Client’s opinion, were legally acquired in the period of trading on the Broker’s platform.

The Client does not agree with the Broker’s decision (see below) and considers the actions of the Broker as unfair. Also, the Client indicated that he had been trading for several months using the same trading strategy, without any issues. In connection with the above, the Client requests the Dispute Resolution Committee of the Financial Commission to check the disputed transactions for alleged violations and requires the Broker to return the rest of the withheld funds in the amount of 20207.10 EUR, which represents the rest of the Client’s deposit in the amount of 301.58 EUR and accrued profits in the amount of 19905.52 EUR. The Client provided the investigation with the e-mail communication with the Broker regarding this complaint, as documentary evidence.

In turn, the Broker claims that in the period of the incident, the Client has been using an EA that was trying to abuse the system (exploit weaknesses in the Broker’s trading platform). As such, the Broker does not see any grounds for the Client’s complaint and refers to the following provisions of Cl. 1.4.b.v, 9.3.b, and 12.6 of their Client Agreement, according to which:

1.4. CLIENT REPRESENTATIONS AND WARRANTIES

  1. b) The Client represents and warrants to XXXX that:
  2. v) The Client will not, either acting alone or with others, engage in conduct which results in Suspicious Trading Activity as defined in this If XXX has reasonable grounds to suspect that the Client engages in Suspicious Trading Activity, XXX reserves the right to temporarily or permanently suspend the Client’s trading account, recover any losses incurred in connection with the Suspicious Trading from the Client and/or void the Client’s Orders and cancel any associated profits, with immediate effect.

9.3. TERMINATION

  1. b) In the event that XXX is made aware of or has reason to believe any of the following:

viii) a Default Event has occurred;

  1. LIABILITY AND INDEMNITY

12.6. In calculating or mitigating its loss due to a Default Event, XXX is entitled to:

  1. crystallize, unwind, reverse, void, repair or close any Open Positions by closing any open Contracts; and/or
  2. nominate the date on which the open Order is valued; and/or
  3. nominate the methodology used to calculate the open Orders’ value; and/or
  4. take any other action that XXXXXXX determines to be reasonably necessary to protect its legitimate interests.

In support of their decision, the Broker provided the investigation with a history of all trading/non-trading operations performed in the Client’s trading account, as documentary evidence.

Complainant Broker
XXX YYY
Financial Commission Complaint #ZZZ
Complaint Raising Date Complaint Filing Date
31/07/2023 17/10/2023
Complaint Response:

The decision on this complaint is based on the information provided by the brokerage company XXX 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, according to the Broker, prior to the incident, the Client identified a technical problem on the Broker’s side and implemented an abusive strategy aimed at making risk-free profits at the expense of lagging / non-market Moreover, the Broker points out that the Client coordinated his trading operations with other clients, the holders of trading accounts ## 1272956, 1279873, which is also a violation of the trading rules established by the Company. This fact is confirmed by the same CID registered in the server log records on the relevant accounts.
  1. Second, it should be noted that in order to make a decision on this case the DRC has analyzed the Client’s trading activity in his trading account # XXX

a) The analysis of the nature of the transactions performed by the Client showed the following:

  • The Client’s transactions were made in the period from 05.2023 to 27.07.2023.
  • The Client’s transactions were made with one financial instrument: XAUUSD.
  • The size of the Client’s transactions varied from 01 to 4.48 lots.
  • The duration of the Client’s transactions ranged from several minutes to several hours.
  • The transactions performed on the Client’s account were made during the hours of active market

b) The analysis of the financial results of transactions performed by the Client showed the following:

  • After 307 transactions performed in the specified period, the amount of net profits accumulated on the Client’s trading account reached 19905.52 EUR.
  • The share of profitable transactions performed by the Client was 48% or 244.
  • The share of unprofitable transactions performed by the Client was 52% or 63.
  • The number of SO events that occurred on the Client’s account in the specified period was 2.
  1. Third, the DRC has verified the validity of the Broker’s assertion regarding the Client’s use of the vulnerabilities of their 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.

To ensure an objective investigation Financial Commission uses several different sources, such as Tradeproofer, Tradefora, Verify My Trade, TrueFX, FX Benchmark and some others to verify the quality of trades’ execution. The analysis of the execution quality of the Client’s trades showed that a significant part of the large-size trades (0.5 lots or more) performed in the period between 28.06.2023 and 27.07.2023 were opened and/or closed at prices that were much better than the actual market prices available in the period of the incident.

A good example of the above-mentioned abusive strategy utilized by the Client can be a series consisting of 4 consecutive profitable transactions with the financial instrument XAUUSD performed on the Client’s account on June 29, 2023.

As such, in the common opinion of the DRC members, the Broker have sufficient grounds to assert that at least a part of transactions performed on the Client’s trading account # 1279859 were executed at lagging / non-market prices. It is highly likely that the Client might have used special technical means (EA) to exploit vulnerabilities in the Broker’s quotation system.

  1. On the other hand, the experts of the DRC also expressed a common opinion on the organization of the process of trading at the Broker. The experts of the DRC believe that if a broker cannot provide a normal supply of quotes, they should prohibit trading or look for another source of quotes. Currently, there are many companies offering high-quality market data that can be used without any risk to business. According to the experts of the DRC, the Broker should bear the risks associated with the quality of the quotations supplied.
  1. Furthermore, it should also be noted that in its decisions, the Financial Commission tries to adhere to the principles of Fair Business Practices, which imply, among other things, the following: if any problem is detected, its solution should be provided as soon as possible to mitigate the negative impact of this problem on the client. The Financial Commission adheres to the following rule: if the client has unfairly made a profit (using the vulnerabilities of the platform), then such profit must be recognized as illegitimate within 1-5 business days and debited from the client’s trading account. The client must be notified of the violation in a timely manner, and not after several weeks or months, at the stage of withdrawing funds from the client’s trading account.
  1. Finally, it should also be noted, that in the opinion of the DRC, the collaboration claim made by the Broker cannot be accepted in this case, since the Broker failed to identify and flag the customers based on their common digital traits, specifically by the same CID registered in the server log records on the relevant accounts.

Thus, taking into account all of the 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 the disputed 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 the abuse of such kind. 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 members of the DRC of the Financial Commission have decided that the Client should be compensated in the amount of 50% of the disputed amount. Also, according to the general opinion of the DRC members, the Broker should take the necessary measures for the 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 9952.76 EUR
If you have any questions regarding this investigation, please send them to the following address [email protected]
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

04/01/2024
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