THE OPEN POSITIONS CLAUSE:
6.9 In the event of any of the following, WS reserves the right (but is not obliged) to close any or all, in whole or in part, of your open bets (including those
held on a joint account with others) on the basis of WS’ current (or next available) market quotation, to exercise its rights of combination consolidation and
set off hereunder, to close your account and not accept any further bets from you, in each case with or without notice to you, and such closure will
generally (but not always) be carried out by WS at either 12.00 noon or 16.00 on the day in question, but it reserves the right to effect closures at any
time:
(i) if any method of payment employed by you to make payment to WS is not met on first presentation or is subsequently dishonoured;
(ii) if Variation Margin is due and you fail to pay such Variation Margin in full within three Business days of becoming due or in accordance with the relevant
timescales as set out in clause 6.5 and 6.6 as the case may be;
(iii) if, in the case of Credit Account holders, the amount of Variation Margin due exceeds three times your Credit Allocation, or, in the case of Deposit
Account holders, the amount of Variation Margin due exceeds three times your Account Balance;
(iv) if WS considers, in its absolute discretion, that you are unlikely to meet any Variation Margin payment or any other payment when due;
(v) if WS considers, in its absolute discretion, that you have materially breached any of the clauses contained within this Customer Agreement as may be
amended from time to time;
(vi) if any representation or warranty made by you in relation to this Customer Agreement is found to be, or becomes, untrue, inaccurate or misleading in
any respect;
(vii) if you become the subject of an Insolvency Event;
(viii) if you should die, be committed as a patient under relevant mental health legislation or any court order is made in respect of you under relevant
mental health legislation or WS suspects or believes the same to be true;
(ix) if we are in dispute in relation to any order, bet or instruction, save that in such case we may close all but not part only of the actual or alleged bet in
dispute whether or not such action is considered desirable for minimising the amount in dispute;
(x) if there occurs any other event or any other circumstance exists, where we reasonably believe that it is necessary or desirable to take any of the above
actions in order to protect ourselves or any or all of our other clients;
(xi) if any regulatory body of WS’ business, or the rules of such a body, require WS to do all or any of the foregoing.
WS reserve the right to exercise all or any of the rights referred to in this clause 6.9 upon or at any time after the occurrence of any of the events therein
referred to and regardless of when the underlying market may close.
The problem we have when we open account is that we dont read the actual contract as we do not expect this to happen to us. Worldspreads have every angle covered for open positions but am talks with a legal rep today so lets see what progress I make.
Kind Regards
Rav
note the wording "if you( the client)become the subject of a insolvency event",meaning if i was declared bankrupt, right?
ReplyDeleteRav, I personally think that the 'open positions' angle is a dead duck. Once the administrators took over, the company as we know it is pretty much dead, and as such they've simply acted in the collective clients best interest which is to completely remove any risk to remaining client funds.
ReplyDeleteI think we should focus our collective attention on the state of the company accounts when they were last prepared by E&Y. I think we can safely assume that E&Y have no part in this fraud and therefore I think we can focus on the roles played by the various directors or staff members in preparing the documents which E&Y were using to produce their report. In particular the 'trust documents' which WS would have had to submit to prove funds held in the 'client funds account'. I wouldnt mind meet with E&Y to discuss these and other points.
I'm also interested to find out if the directors were still paying themselves (effectively from client funds) when the firms money ran out. I'd also like to know if either the FD or the CEO recieved any payments when they left the firm recently (aka golden handshakes). These points may become critical because certain assets may be clawed back under the governments new 'proceeds of crime' laws.
Steve S
Both the Directors and E&Y owed a "duty of care" to both clients and shareholders to have uncovered/prevented such a fraud.They dont have to be a party to the actual fraud to be liable. They all owed a "Duty of care". With respect to the Directors/employees who actually perpetrated the crime,well they should have all their assets confiscated as the proceeds of crime and should be tried in the criminal courts.
ReplyDelete"IF" it can be proved that the documents provided to E&Y by WS showed significant discrepancies in the account values etc would we as clients of WS be able to sue E&Y for negligence?
ReplyDeleteThe job of the Auditors is far more than just getting documents from WS and publishing a set of accounts.Part of what they are paid to do as Auditors (a very large part) is to ensure that the figures provided to them by WS are correct.As Auditors they are supposed to check with the banks that hold the cash that it is actually there.A reconciliation of client balances and the actual cash held with banks is a very basic function of an Auditor.In this case is would appear that E&Y failed to do so and so are liable.
ReplyDeleteI think that it is for the Administrators i.e KPMG to sue on our behalf.
This open position thing will be an interesting case, since in theory if I bought a futures option I made a BET, that the price will be in my favor when it runs out on a specific date, not before or after that. So if they can't wait until that date arrives, than the bet should be considered non-existent (non fulfilled). Of course only in theory...
ReplyDeleteNote: I'm another Adam, than the one, who posted on the other topics. :-)
ReplyDeleteThe open positions had to be closed down,the FSA would have insisted that they are since individual bets were not hedged.Worldspreads like all other spread betting companies only hedge aggregate positions when most people are either all long or all short of a particular market.In most cases the longs and shorts all cancel each other out and the SB comany does not need to hedge.SB companies only take a hedge when most of their clients are one way.
ReplyDeleteAfter the appointment of KPMG all WS hedge counterparties would have cancelled the hedge contracts with WS as they would not have been paid by them and so WS had no hedges by Monday.They had to close the open positions.
I suspect that the T&Cs of the Client Agreement would contain a term which allows WS to close out any position given a 'force majure event'. Failure of WS would reasonably be considered such an event.
ReplyDeleteIn terms of the Auditors - My comments above were really in relation to finding 'the smoking gun' which would lead us to the truth as to how this whole mess began. As I already mentioned, the trust documents would be a great place to start since it is these documents which would have to be made up, altered or doctored in some way in order for the fraud to take place - how else could the firm 'show' that they had almost £30m sat in their client funds accounts when in fact they had less than half that? This should create a trail that can be followed. What you have to remember here is that the kind of people who do this kind of fraud don't expect to get caught! It could well be that they expected the firm's financial position to recover and thus the fraud would never be discovered. I'm sure that quite often this kind of thing goes on and nobody notices quite simply because no one is actually looking at what is going on in finite detail. The finite examination only occurs when something terrible happens. With that in mind the trail back to the fraudsters is easy to follow because the fraudsters haven't really made any meaningful attempt to cover their tracks at the time.
Of course the 'covering of tracks' take on a whole new meaning once the cat is out of the bag. Let's face it, in this instance the fraudsters are probably looking at sentences of over five years in prison. That's just the start. They'll never get a job near the City again, houses will have to be sold and marriages will fail. It's safe to say that life will never be the same again for these people once they're identified.
Steve S
I hope that those people that knowingly took MY money out of MY account to support their failing company never forget the impact that their selfish actions have had on the innocent clients.They broke the rules and lost our money because they did not have the courage to put their hands up and admit the company had run out of money when it did.They instead stole our money to keep the show on the road so that they could continue to take big salaries out of the business.
ReplyDeleteIf any of them read this blog,shame on you.You are cowards.
Best not to get too angry.They will be caught.
ReplyDeleteJust think about the day they are introduced to their new cell mate ,"Big Jake" of the Scubs, the 6`4", 22 stone lag who flashes a toothless smile and in a deep sinister voice gives the new inmate the immortal greeting :
" You`re my little puppy now".
The City of London Police will have them singing like canaries and "Big Jake" will have them squeeling like pigs.
I think this is a great blog. It's right to draw attention to the question of whether margin deposit refunds are being offered quickly enough. And if anyone thinks there's been any jiggery-pokery in the way that open positions were closed - for example, if the closure times were deliberately staggered retrospectively so that clients with long positions on a given instrument got the lowest price it had been that day, whereas clients with short positions got the highest price - then that ought to be checked out too.
ReplyDeleteBut not everyone's going to agree with you on the idea that open positions shouldn't be closed at all. Because not every trader is a position trader. Some are day traders. Some are casual dabblers who would much rather their positions were closed than open if they ever have any doubt about which way it will go, so as to limit their risk.
And when these casual dabblers want to beat a hasty retreat from a position that's started to move against them, they will want to close that position as quickly as possible. What they *don't* want is to be told that their position is now being managed by some other broker they've never heard of, and then have to faff about trying to look for a new phone number, new website URL or new smartphone app for this other broker, and then figure out the new broker's procedures for authenticating their identity so that they know they're a real client, all while the position that they *want* to close but *can't* close moves further and further against them. If there's any risk that there will be extra communication barriers thrown up between them and the broker, then these clients would probably prefer the broker to take it upon themselves to close the position, without client instruction.
And besides, if an open position *is* moved to another broker but without the client's prior agreement, then how is that broker going to be able to enforce the margin calls against the client? If the new broker thinks they *can't* enforce it, then the position is simply going to get closed anyway.
I have to say, if you had a position that got closed against you at the time that Worldspreads went belly up, then it's your bad for having held onto a position that had moved so far against you in the first place. If you don't want to run the risk of that happening to you again, then you shouldn't be betting *at all* - and you *certainly* shouldn't be holding onto open positions for the length of time you do.
It's impossible to determine Worldspread's final liability to a client while they still have an open position. The positions *had* to be closed, as part of the administration procedure.
I'd still hope that everyone gets as much of their money back as possible, though, and as quickly as possible - and it's great that you're keeping us informed about what's going on, so thanks for that.