“1. Spread betting is not so much or not merely a bet, although it can be described as such, as a form of contract for differences. It enables a customer to take a position on a market (or an event) for a very small stake. Thus if the Dow Jones index is, say, at 10,000, one can “buy” or “sell” the market at a spread around the index of, for the sake of example, 10 points either way, 9990 to 10010. If one buys, one is betting that the market will rise above 10010. If one sells, one is betting that the market will fall below 9990. If one buys and the market rises, one stands to gain£1 for every point that the index exceeds 10010. If one sells and the market falls, one stands to gain£1 for every point that the index drops below 9990. If, however, one calls the market wrong, then one will stand to lose£1 for every point that the index exceeds the spread point in the wrong direction. Thus if one sells at 10,000 with a sell spread point at 9990, one will make£1 for every point the market falls below 9990 and lose£1 for every point the market rises above 9990. Until the bet or “trade” is closed, the gains and losses are merely “running” gains or losses. They are real enough, but constantly changing with every change in the index, and have not yet been fixed. Closing the bet will fix the position, win or lose. Unlike a classic bet, the customer can of course lose more than his stake. Indeed, on the example given, of a sale spread point of 9990 when the market is at 10,000, if the market does not move an inch, the customer will lose£10 for every£1 staked. Nor, again unlike a classic bet, are his winnings fixed at the outset by an agreement on odds. In theory winnings based on rising markets are infinite (in practice of course they are not) and losses based on falling markets are limited only in so far as they cannot exceed the consequences of a fall in the index to zero. 2. Normally, of course, to gain by£1 for every rise (or fall) of a single point in a stock market index such as the Dow Jones would take an investment of significantly more than£1 . In effect, one's£1 bet commands a position in the market significantly greater than the stake. In other words, there is a large element of gearing in the trade, and the situation is correspondingly volatile. Where the market in question is itself in a volatile phase, the risks become even greater. Thus, if the Dow Jones is capable of moving within a range of 100 or 200 points in a single day, the customer can be£100 to£200 richer or poorer per£1 stake within a matter of hours of his trade. On a trade of£100 , those figures become£10,000 to£20,000 . 3. The spread betting operator who accepts these trades does not bet against the customer, but lays off the trade elsewhere. Ultimately, I suspect, the trade is accumulated in some form of derivative transaction on a futures exchange, but I do not know. The operator, however, by laying off the bet elsewhere seeks to profit by means of the spread. The means by which it does that, and the terms on which it does that, however, are not a matter for the operator's customer: nor, in the present case, have the applicable terms been disclosed.”
“Q. You understood perfectly well how the account was going to work. A. Fair enough. Q. Well, do you agree or not? A. How the account ... My issue is not with the account opening, my issue is with the closeout, okay? So I’ve accepted every point you’ve made on the account opening, okay. I’ve said that if I’ve signed it, I have to stand by it. Q. … Are you saying now that you don’t wish to pursue any of the defences that you’re taking about the account opening and classification process? A. No, I’m not saying that. I mean, if the account opening was not dealt with correctly, it’s not dealt with correctly, and it has to be appointed by this court. The point I’m trying to make here, my bigger issue with this is the closeout. If I’ve signed a document I stand by the document I signed. The onus is on me to have read the … the small print.”
“A professional client is a client that is either a per se professional client or an elective professional client.”
“Elective professional clients A firm may treat a client other than a local public authority or municipality as an elective professional client if it complies with (1) and (3) and, where applicable, (2): (1) the firm undertakes an adequate assessment of the expertise, experience and knowledge of the client that gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making his own investment decisions and understanding the risks involved (the "qualitative test"); (2) in relation to MiFID or equivalent third country business in the course of that assessment, at least two of the following criteria are satisfied: (a) the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters; (b) the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds EUR 500,000; (c) the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged; (the "quantitative test"); and (3) the following procedure is followed: (a) the client must state in writing to the firm that it wishes to be treated as a professional client either generally or in respect of a particular service or transaction or type of transaction or product; (b) the firm must give the client a clear written warning of the protections and investor compensation rights the client may lose; and (c) the client must state in writing, in a separate document from the contract, that it is aware of the consequences of losing such protections.” (a) the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters; (b) the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds EUR 500,000; (c) the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged; (the "quantitative test"); and (a) the client must state in writing to the firm that it wishes to be treated as a professional client either generally or in respect of a particular service or transaction or type of transaction or product; (b) the firm must give the client a clear written warning of the protections and investor compensation rights the client may lose; and (c) the client must state in writing, in a separate document from the contract, that it is aware of the consequences of losing such protections.”
“Before deciding to accept a request for re-categorisation as an elective professional client a firm must take all reasonable steps to ensure that the client requesting to be treated as an elective professional client satisfies the qualitative test and, where applicable, the relevant quantitative test.”
“3.8.1R Policies and procedures A firm must implement appropriate written internal policies and procedures to categorise its clients. 3.8.2R Records (1) A firm must make a record of the form of each notice provided and each agreement entered into under this chapter. This record must be made at the time that standard form is first used and retained for the relevant period after the firm ceases to carry on business with clients who were provided with that form. (2) A firm must make a record in relation to each client of: (a) the categorisation established for the client under this chapter, including sufficient information to support that categorisation; (b) evidence of despatch to the client of any notice required under this chapter and if such notice differs from the relevant standard form, a copy of the actual notice provided; and (c) a copy of any agreement entered into with the client under this chapter. This record must be made at the time of categorisation and should be retained for the relevant period after the firm ceases to carry on business with or for that client. (3) The relevant periods are: (a) indefinitely, in relation to a pension transfer, pension conversion, pension opt-out or FSAVC; (b) at least five years, in relation to a life policy or pension contract; (c) five years in relation to MiFID or equivalent third country business; and (d) three years in any other case.” (a) the categorisation established for the client under this chapter, including sufficient information to support that categorisation; (b) evidence of despatch to the client of any notice required under this chapter and if such notice differs from the relevant standard form, a copy of the actual notice provided; and (c) a copy of any agreement entered into with the client under this chapter. (a) indefinitely, in relation to a pension transfer, pension conversion, pension opt-out or FSAVC; (b) at least five years, in relation to a life policy or pension contract; (c) five years in relation to MiFID or equivalent third country business; and (d) three years in any other case.”
“(1) In order to comply with the client's best interests rule, a firm should not, in any communication to a retail client relating to designated investment business: (a) seek to exclude or restrict; or (b) rely on any exclusion or restriction of; any duty or liability it may have to a client other than under the regulatory system, unless it is honest, fair and professional for it to do so. (2) The general law, including the Unfair Terms Regulations (for contracts entered into before1 October 2015 ) and the CRA, also limits the scope for a firm to exclude or restrict any duty or liability to a consumer.”
“(2) A contravention by an authorised person of a rule made by the FCA is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty.”
“CMC Spreadbet Plc (referred to below as “CMC Spreadbet”, “we”, “us” or “our”) is committed to treating you fairly and acting in your best interests when we execute your Orders. In this document, we summarise the process by which our Platform executes your Orders in accordance with our regulatory duty to take all sufficient steps to obtain the best possible result for you. When you enter into a Bet, Digital 100 and/or Countdown through our Platform you consent to your Orders being executed in the manner described below, outside of a Trading Venue. The words and expressions in this document that begin with capital letters have the meanings set out in Schedule 4 of our Financial Betting Terms of Business.”
“It is important that you read and understand this risk warning notice before accepting it. Except where expressed otherwise, certain terms used in this risk warning notice have specific meanings as set out in Schedule 4 of the Financial Betting Terms of Business. CMC Spreadbet Plc (referred to below as “CMC Spreadbet”, “we”, “us” or “our”) is committed to treating you fairly. In this notice, we provide you with information to help you understand the nature and risks of your Bets, Digital 100s, Countdowns and our services. However, this notice does not explain all of the risks and other significant aspects involved in our Bets, Digital 100s and/or Countdowns. You should take sufficient time to read all the relevant information that we provide to you before entering into a Bet, Digital 100 or Countdown. Our Products can carry a high risk to your capital as Prices may move rapidly against you, particularly during volatile market conditions. Certain Products, such as Bets on cryptocurrencies, are more volatile than others and may be even more susceptible to sharp and sudden movements in Price. When entering into Bets you can lose more than your investment and you may be required to make further payments. This does not apply to a CMC Start Account, an Account with Negative Balance Protection enabled or an Account with Shield Mode enabled, with which you risk losing your Invested Capital. The higher the leverage involved in a Bet, the higher the risks involved. By comparison, your potential losses from Digital 100s and Countdowns are limited to the amount of your Digital 100 Amount or Stake (as applicable). You should not enter into Bets, Digital 100s and/or Countdowns with us unless you fully understand the risks involved. If you are in any doubt you should seek independent professional advice.”
“1. Bets, Digital 100s and/or Countdowns may not be appropriate for you. 1.1 We are under a regulatory duty to assess whether our products and services are appropriate for you. When we process your application to open an Account with us, we will conduct an assessment as to whether you have sufficient knowledge and experience to understand the risks involved in investing in Bets, Digital 100s and/or Countdowns based on the information you provide us. We will inform you if, as a result of our assessment, we consider that Bets, Digital 100s and/or Countdowns may not be appropriate for you. However, our assessment does not relieve you of the need to carefully consider whether to enter into our Products. Any decision to enter into our Products is entirely at your own risk. 1.2 If we warn you that entering into Bets, Digital 100s and/or Countdowns may not be appropriate for you on the basis of your knowledge and experience, then you should refrain from entering into Bets, Digital 100s and/or Countdowns. If you still wish to enter into Orders, you should only invest once you have acquainted yourself sufficiently with Bets, Digital 100s and/or Countdowns through the demo account available on our Website and understand the risks involved. … 5. You may lose more than any deposit when you enter into Bets with us, except with a CMC Start Account, an Account with Negative Balance Protection enabled or an Account with Shield Mode enabled. 5.1 When you enter into Bets with us, you risk losing more than the amount (if any) that you deposited with us and you may be required to make further payments. This does not apply to a CMC Start Account, an Account with Negative Balance Protection enabled or an Account with Shield Mode enabled, with which you risk losing your Invested Capital. Although our Platform has features that are designed to help limit your risk of loss, none of these other than the Shield Mode and Guaranteed Stop Loss Orders are guaranteed and you should not rely on them. 5.2 The amount of loss for an individual Bet will be the amount that you owe us when that Bet is closed. Bets involve leverage (also known as ‘gearing’ or ‘margining’), which means that the effects of small movements in Price are multiplied and may have large impacts on the value of your Positions, both in respect of profits made and losses incurred and the higher the leverage rate, the higher the risk involved. In addition, the nature of leverage means that your losses may exceed the amount of any deposit (if any) that you hold with us when entering into a Bet. 5.3 It is therefore important that you monitor your Bets closely and the rate of leverage utilised. A small movement in Price may have a large impact on your Bets and Account and may result in immediate Account Close-Out. 5.4 There are costs associated with betting with us. Depending on the Bets you enter into, and how long you hold them for, we may require you to pay holding costs. If you keep Bets open for an extended time, the aggregate holding costs may exceed the amount of any profits or increase your loss. Only trade with money you can afford to lose. 5.5 If we have agreed to provide you with the sales trader service and have waived or permitted a negative Margin on your Account, this does not restrict your losses or financial liability. You are still liable to pay all losses which are due and payable to us. … 8. Your Bets, Digital 100s and/or Countdowns and Positions are at risk of being closed automatically. 8.1 The automatic closure of your Bets and/or Positions by our Platform and/or our client management team (if we have agreed to provide you with the sales trader service) is intended to prevent you incurring further losses and we may close all Bets and/or Positions on your Account, not just Bets that are making a loss. However, we do not guarantee such closure and you must not rely on it. It is your responsibility to monitor your Positions and your Account Revaluation Amount closely. Our Platform and/or our client management team will attempt to notify you when your Account Revaluation Amount reaches a specific level, although you should not rely on our Platform and/or our client management team giving you this warning. To prevent Account Close-Out, you should keep an amount in your Account that allows sufficient headroom to keep your Positions open in case of sudden changes to the required Margin amount resulting from Price movements. It is important to note that an amount deposited into your Account (which appeared to be sufficient) can very quickly become insufficient, due to rapidly changing market conditions. …”
“Good to speak to you earlier. Further to our conversation please find below the link which leads you straight to the account opening page. https://oaf.cmcmarkets.com/en-gb/onboarding-start?iaid=351052. Please click on this and complete the form as required. It shouldn’t take more than a few minutes to fill in. Please call me either on 0203 0038598 or on my mobile 07831 544429 if you have any questions. After the account is set up I will send you the form to upgrade to Professional status. We will then discuss what facilities you require. We can set you up on something known as the FRS (fixed rate schema) for margins. This will ensure that all your equity trades will be margined at either 10% or at a maximum of 25% whatever size you are dealing in depending on the market cap of the stock in question. Please note there will be a cap on the actual amount you can trade in on this scheme per share but usually it is a pretty decent size. Obviously all other non-equity business will be at the normal Professional rates which are probably the most competitive in the industry. All clients that get introduced by me have access to our bespoke dealing desk. The desk will deal with all your trades and are incredibly professional both in their manner and execution of the business. I’m sure you will be more than happy with the service. First thing first though is to get the account open so please let me know either by email or through a quick call when the application has been made and I’ll make sure we get this processed as quick as possible. Looking forward to doing some good business together…”
“In order for us to classify you in this way, we must assess your expertise, experience and knowledge, and be reasonably assured that in light of the transactions and services envisaged, you are capable of making your own investment decisions, understand the risks involved and are able to bear those risks in making out assessment, we may rely on information we already possess about you and/or request additional information from you and/or call you to discuss your investment experience. In addition to this qualitative test, you must satisfy at least two of the three quantitative criteria.”
“You retain the right to request a different categorisation at any time, for example if you wish to be afforded the higher level of regulatory protections. You understand that in these circumstances CMC Markets may not be able to provide certain services to you.”
“Spread Bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Professional clients: Losses can exceed deposits when spread betting and trading CFDs. Countdowns carry a level of risk to your capital as you could lose all of your investment. Invest only what you can afford to lose. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice.”
“Exclusive benefits for CMC Pro clients • Margin rates from 0.2% • Dedicated account manager • Access to cash rebates and rewards^ • Priority access to new products • Access to Countdowns”
“Protections you may lose As a professional client, please remember that you may lose some of the FCA protections afforded to retail clients: • Our communications, including financial promotions, will not be subject to all of the retail regulatory requirements • We may assume your level of experience when assessing whether our products are appropriate for you • Access to the Financial Ombudsman Service only extends to professional clients that meet the FCA’s Handbook definition of a consumer • You won’t receive negative balance protection, so your losses can exceed deposits • CMC Markets are required to restrict leverage to between 30:1 and 2:1 on the products we offer to retail clients. Higher leverage can work against investors and amplify losses.”
“CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Professional clients: Losses can exceed deposits when spread betting and trading CFDs. Countdowns carry a level of risk to your capital as you could lose all of your investment. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice. Invest only what you can afford to lose.”
“The Client hereby understands, agrees and confirms that: They are to be treated as a Professional Client, as opposed to a Retail Client, in respect of the investment activities the Client conducts with CMC Markets. They are capable of making their own investment decisions, understanding the risks involved and bearing those risks. As a Professional Client, the Client will not be entitled to the protections and rights afforded exclusively to Retail Clients under the FCA (or equivalent) rules … They will retain the right to request a different categorisation at any time for example by requesting to be categorised as a Retail Client because they believe that they are unable to properly assess the risk involved and wish to be afforded the higher level of regulatory protection. … Upon signing this Agreement, they will be treated as a Professional Client and will continue to be treated so until CMC Markets inform them otherwise. The following protections and rights that apply to Retail Clients will not apply to the Client or will be limited in application to the Client as a result of being categorised as a Professional Client: • Retail client leverage level restrictions will not apply • You will not benefit from negative balance protection • The mandatory margin close out on an account basis (at 50% of minimum required margin) may not apply • Our communications, including financial promotions, will not be subject to all the retail regulatory requirements including risk warnings • Access to the Financial Ombudsman Service only extends to professional clients that meet the FCA Handbook's definition of a consumer • Your funds will not be subject to the client money rules and will not be segregated by us … Declaration The Client confirms that they wish to be treated as a Professional Client by CMC Markets for the purpose of their Account(s). the Client has read the above written warning from CMC Markets regarding the protections and rights that the Client may lose and how CMC Markets will treat the client’s money and the Client accepts the consequences of losing such protections and rights.”
“Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Professional clients: Losses can exceed deposits when spread betting and trading CFDs. Countdowns carry a level of risk to your capital as you could lose all of your investment. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice. Invest only what you can afford to lose.”
“That’s ok with me.”
“We just need you to: 1. verify your email address to activate your account; and 2. confirm whether you are a private or non-private investor. For your own benefit and protection, you should visit the Legal section of our website and ensure you read the cost disclosure and the Key Information Documents, as well as the Terms of Business, Risk Warning Notice and Order Execution Policy, before you start to trade.”
“CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Professional clients: Losses can exceed deposits when spread betting and trading CFDs. Countdowns carry a level of risk to your capital as you could lose all of your investment. Invest only what you can afford to lose. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice.”
“MR SAOUL: Now, as a result of those warnings, Mr Tchenguiz and as a result of your wider experience, you were well aware that if you were classified as a professional client, you would lose a number of protections that are available to retail clients. A. Yes. Q. And you were well aware that one of the protections that would be lost was negative balance protection. A. Yes. Q. And you knew what negative balance protection meant, didn’t you? A. Yes. Q. It means -- and you knew at the time that you opened your account with CMC that removing negative balance protection meant your account could go into deficit? A. Yes. Q. Now, becoming an elected [sic] professional client with each of those brokers, before you opened your account with CMC, allowed you to acquire very substantial spread bet positions in relation to the First Group shares? A. Yes. Q. And it enabled you to trade on a highly leveraged basis with each of them? A. Market leveraged basis, yes. Q. And it meant in practice that you could have exposure to a very substantial amount of First Group shares without having to put down anywhere near the amount of money that would have been required to buy the shares themselves? A. Yes. Q. Now, prior to opening your account with CMC, you held a spread bet position with RJ O’Brien which was equivalent to approximately 18 million shares in First Group; do you remember that? A. Yes. Q. And you wanted to move some of those positions away from RJ O’Brien because they were increasing their margin requirements from 20% to 35% in your case. Do you remember that? A. Yes.”
“[RJO] recognised the risk of 18 million shares to Robert Tchenguiz was too high and one of the ways of dealing with it is to increase margin or telling me to reduce the position, hence why, when I went to CMC, they knew that they’re going to take this position out of RJ O’Brien, a proportion of it, which is a 2.5 million share. They knew it. And it wasn’t a margin issue, it was just that RJ O’Brien did not want me to have -- they didn’t want to hold more than a certain amount of shares, once they recognised I have over 54 million shares in the market.”
“Q. Had CMC not been able to take on the 2.5 million shares from RJO, you would have looked to move that 2.5 million shares to another spread betting company. A. Yes. Q. And that’s in all likelihood what you would have done; do you agree? A. Yes. Q. And the market in due course over the following three months would then have moved against you as it did in fact; do you agree? Let me ask that again. The market then would have moved against you in exactly the same way that it did. A. Yes. Q. But you have no basis to suggest, do you, that if one of these brokers had had the 2.5 million shares in addition that they would have behaved any differently? A. Well, probably they wouldn’t have behaved differently, but I could have stayed with RJO and had a totally different outcome, which is a different outcome had it stayed with RJO. Q. You’ve accepted in answer to one of my earlier questions that had CMC not taken on the 2.5, you would have looked to move it to one of the other operators -- A. Fine. Q. Do you accept that? A. Fine, I accept that …”
“[12/17/19, 11:56:51] David Garbacz: Hi Robbie - I sent you an email confirming your account is open and we now need to fill in the cmc Pro form. Would you like me to come and meet you somewhere to sort it with you and then we can discuss other terms for your account and I can take you through how we work? [12/17/19, 12:06:21] Robbie Tchenguiz: That would be great David. I could do any today except at 5 pm. I will send 300k today to you if you tell me where to send it. [12/17/19, 12:09:26] David Garbacz: I’ve unfortunately got to go to a funeral this afternoon so wouldn’t really be back until around 5. What about tomorrow either first thing or any other time is good for me . I’ll send you the bank details … [12/17/19, 12:25:49] David Garbacz: Ok superb - see you tomorrow at 9am. I sent you the bank details to your email by the way. [12/17/19, 12:25:56] Robbie Tchenguiz: Thx … [12/18/19, 14:46:09] David Garbacz: Hi Robbie - lovely to meet you earlier. There are a couple more bits and pieces of paperwork to be organized which I’ve spoken to William about so it looks like, all being well, we will aim to do the trade tomorrow after everything is in place. Hope that’s ok with you. Cheers [12/18/19, 16:14:15] Robbie Tchenguiz: Thank you [12/19/19, 13:49:43] David Garbacz: Hi Robbie - I hope you are well. Just to let you know we are nearly there with regards the account set up... The pro opt up is done and complete. I just sent you the document re the non-seg which is standard for clients on the FRS scheme that we discussed. This needs your signature and to return to me. Also sent you an email confirming the account is a manual liquidation one at an account value of zero (not that I would expect it to ever get there hopefully) and confirmation that you were approved for the FRS. If you could just reply to that email saying you agree. Once we receive those two bits back we can then start to receive instructions and we can do the switch from RJ if you want . Many thanks and looking forward to a successful relationship. Regards David [12/19/19, 13:50:27] Robbie Tchenguiz: Thank you will do in the next hour.” [12/17/19, 12:25:56] Robbie Tchenguiz: Thx [12/18/19, 16:14:15] Robbie Tchenguiz: Thank you Regards David [12/19/19, 13:50:27] Robbie Tchenguiz: Thank you will do in the next hour.”
“Good to speak to you earlier. Further to our conversation please find below the link which leads you straight to the account opening page. https://oaf.cmcmarkets.com/en-gb/onboarding-start?iaid=351052 Please click on this and complete the form as required. It shouldn’t take more than a few minutes to fill in. Please call me either on 0203 0038598 or on my mobile 07831 544429 if you have any questions. After the account is set up I will send you the form to upgrade to Professional status. We will then discuss what facilities you require. We can set you up on something known as the FRS (fixed rate schema) for margins. This will ensure that all your equity trades will be margined at either 10% or at a maximum of 25% whatever size you are dealing in depending on the market cap of the stock in question. Please note there will be a cap on the actual amount you can trade in on this scheme per share but usually it is a pretty decent size. Obviously all other non-equity business will be at the normal Professional rates which are probably the most competitive in the industry. All clients that get introduced by me have access to our bespoke dealing desk. The desk will deal with all your trades and are incredibly professional both in their manner and execution of the business. I’m sure you will be more than happy with the service. First thing first though is to get the account open so please let me know either by email or through a quick call when the application has been made and I’ll make sure we get this processed as quick as possible. Looking forward to doing some good business together, Many thanks and kind regards, David” https://oaf.cmcmarkets.com/en-gb/onboarding-start?iaid=351052 David”
“MR SAOUL: Even prior to CMC sending you the various forms that they sent you, you knew that electing up to professional status would mean you would not benefit from certain protections that retail clients get. A. Yes. Q. And you knew in particular that you would not get the benefit of negative balance protection. A. Yes. Q. And you knew what that meant which was that your losses could exceed your deposits? A. Yes. Q. Now, let’s just pause there for a moment, Mr Tchenguiz. Had CMC not classified you as a professional client, and had they instead treated you as a retail client, you would not have been able to move the position from RJ O’Brien to CMC, would you? A. Sorry, why do you say that? Q. Well, CMC were clear with you, weren’t they, that to accept this position, they required you to be elected to [sic] a professional client? I assume that this is a transcription error for “you to be an elective professional client”
“In breach of COBS 3.5.3(3)(b), the Request Form did not give the Defendant a clear written warning of the protections and investor compensation rights he may lose. The Request Form failed to mention a number of protections that would be lost altogether, and/or it failed to give any clear description of the protections it did mention, sufficient to bring home to a person in the position of the Defendant the consequences of losing all the retail client protections and investor compensation rights.”
“(d) the information is sufficient for, and presented in a way that is likely to be understood by, the average member of the group to whom it is directed, or by whom it is likely to be received, (e) the information does not disguise, diminish or obscure important items, statements or warnings,”
“I scanned over them. They weren’t that important to me at the time.”
“A. It was a small position relative, and it was --- wasn’t that important, but I guess if I’ve signed it, I’m bound by it, that’s fine, I don’t say anything wrong, but you’re asking me whether I read it in detail, no, I didn’t read it in detail. Q. And you didn’t -- A. But I’ve signed it, so that’s what it is . Or have I signed it? Yes, I have. Q. Well, I think this was in electronic form. I think you signed subsequent forms. A. Yes, fair enough. I’m not dodging the fact of what I’ve signed. I signed. I ’m responsible for it. Q. No, no, and you didn’t read the risk warning notice because so far as you were concerned you fully understood all the risks that came with this? A. I did, I understood the risks that came, yes.”
“With the downward pressure continuing on Firstgroup your account is about to go on a margin call. As mentioned could you please arrange to send£200,000 to the details below so that we can keep the account above call levels.”
“Your Account Revaluation Amount is approaching the close-out level, which is the amount of funds required to support your open position(s). If your overall Account Revaluation Amount reaches the close-out level, then any or all of your open positions may be closed in accordance with the Terms of Business.”
“I hope you guys appreciate the position we are in. I hope you will all assist with a normalised process in reduction or replacing of the position. I have the following positions 45m @ InterTrader 18m @ IG 3 m @ CMC 8.75 m @ RJO 4.250m @ Spreadex 2m @ ETX Could you all assist Intertrader … to have a controlled way forward.”
“… today’s move in FGP now has the account owing£1.24m . Can you let us know urgently when this can be transferred over please. I realise conditions are pretty unprecedented but our credit team are pushing us for an update.”
“At the time I sent the email I was not aware that InterTrader … had already closed out on 13 March on 2.3 million shares.”
“Fully understand the circumstances but unfortunately aside from any instruction to give out positions to Intertrader we can’t speak to them on any co-ordinated basis as they have no POA over your account. If you’re not able to transfer funds today and we don’t get an instruction to either sell or move the position it’s likely they will instruct us to close the trade today which naturally we all want to avoid. So if you could update us on the plan we will in turn speak to our credit team to try and keep this all within our control.”
“I am able to procure this asset. Basically it a 54 year lease to Whitbread which has a present value of cash flow at today’s interest rate of over 35m. I have a 5 year loan from ICICCI bank ( credit approved) of 15m. I also enclosed JPMs cash flow valuation ( last year) plus a PWCs placing to a pension fund.”
“[3/16/20, 16:55:16] David Garbacz: Hi Robbie I’ve managed to get you leeway overnight however we will need funds or proof of funds by tomorrow morning 8am or we will have to either ... Give it up to inter trader in the morning which would be preferable for all concerned or if they don’t want to do that we would then have to sell in the market. I’m doing the best I can sir but obviously need to know and can’t just let this run. [3/16/20, 17:58:36] David Garbacz: If you are not sending the margin and Inter trader will take the stock then please let us know ASAP so that we can organize with them.”
“As you know, I act on behalf of the trustees of certain trusts which Robert is a beneficiary of. Robert has explained his personal position, which has arisen as a consequence of the unprecedented market conditions, to the trustees, and has asked the trustees for assistance, as Robert himself has no personal assets and as such is unable to meet the demands being made of him today. The trusts however are discretionary trusts, and although the trustees may be willing to help Robert, they are not obligated to do so and need to consider the request in all of the circumstances. With this in mind I have been asked to contact you to see whether there is a compromise that can be reached with all the brokers (InterTrader, IG, RJ O’Brien, Spreadex, CMC, ETX) in respect of the existing First Group position. The existing value of the position today is c.£33 million . The trustees have identified an asset that possibly could be made available to support Robert’s position; I understand that Robert has already provided you some information in relation to this asset, which is a long leasehold of a property in Cardiff let for 54 years to Whitbread. Before any recommendation can be made to the trustees however, I would appreciate it if you could let me know whether this proposal is viable. I expect that we would need to agree an extension of time for at least 12 months for regularising Robert’s position, given the current state of affairs. Could you please revert urgently as to whether in principle you consider this is a viable option, and whether you believe you will be able to enlist the co-operation of the other brokerage firms.”
“I write further to the positions held by Mr Robert Tchenguiz with your various firms in relation to FirstGroup PLC. As you will be aware, Mr Tchenguiz is a beneficiary of certain discretionary trusts and he has approached his trustees for assistance to help deal with the present situation. I have spoken to the trustees who are potentially willing to assist Mr Tchenguiz, subject to certain conditions. Their proposal is as set out below. 1. The trustees will replace Mr Tchenguiz’s personal guarantee with their own guarantee for FirstGroup shares at 40p/share; the trustees hold assets of over£200m – Mr Tchenguiz has no personal assets. 2. In addition, Mr Tchenguiz will forgo 30% of the upside. In the event Mr Tchenguiz is able to close out his positions in cash within the next two weeks, then the 30% referred to at (2) above will reduce to 20%. Can you please revert to me urgently on the above proposal; I am happy to arrange a call to discuss.”
“I would imagine RJO would have just taken the view we will do as we see fit, unless -- the only comfort they would have obviously taken on board is if money had come across to meet the margin call. And I was unaware of that situation, so I’d not been advised of anything differently, so, no. The only comfort that any financial firm would take with a client who owes money is money in, and that’s it. Outside of that the firm have to do at that point what they think’s best in the situation.”
“A. However, the main thing, certainly for me at the time, was to have a very clean record of how we’d executed the trade, because liquidations in my experience tend to be scrutinised after the event …. “We wanted transparency. If we could do it within a day that would also serve purpose to do -- with regards to the likelihood of execution as well , which is another best execution matter. The trajectory that the stock was on at the time may well have pointed to that market not being available in the near future. Stocks on that sort of trajectory have a habit of going into lengthy suspensions, sometimes taken off the exchange pending news from the underlying company. So we had to factor that in to try and do it as quickly as was reasonable, and given the recent volumes in the previous two days, 3 million shares in one day seemed reasonable, so we set that out with the intention of monitoring it throughout the day to make sure it was still -- remained reasonable.”
“A. However, it does not participate at a set percentage rate. So it will complete on our instruction 3 million 5 shares over the course -- broken up into three separate trades here, but 3 million shares over the course of the day, but it does not know any better than anybody else what the total number of shares will be at the end of the day. So in addition to using something that tried to trade with the volume that went through, we also wanted to monitor what proportion of the actual volume that was being traded we were participating at. Q. So you did that separately? A. Correct. Q. And what was the purpose of your monitoring it, to do what the algorithm couldn’t do? A. It’s an additional sense check.”
“Q. Well, if you’re already in a peak of excess selling, anything you add to the market in terms of volume is going to exacerbate that position, isn’t it? A. I see these as two separate things. So we can’t control, and we would be speculating if we tried to understand why something is trading more than it usually does. We are just looking at our trade versus the underlying market on that day or to set the parameters initially to look at the nearest thing that we have, which was the previous day. In terms of the volume being more, this was in the middle of a pandemic, volumes were through the roof, fairly much, across the board.”
“Q. So you think that CMC’s approach was unusual in seeking to unwind in those circumstances. Is that your point, that CMC was somehow going to be doing something different? A. No, I’d expect everyone to act with the information that they had, but we didn’t know who was selling and who wasn’t.”
“16.8.3 It appears from an account statement provided by RJ O’Brien that it sold its first 3 million shares between 17 March and24 March 2020 . Based on documents provided by Mr Tchenguiz, I have calculated that the average price achieved during that period was 32.4p. i.e. a difference of 1.426p per share, less than 4.5% as compared with the price achieved by CMC, which is a very small difference. 16.8.4 By selling the shares incrementally over a period of 4 weeks, RJ O’Brien took a risk that the share price would worsen further and that Mr Tchenguiz’s negative balance would then increase. By selling the shares within a day, CMC avoided such a risk. As I mentioned above, in fact the share price continued to drop the day after CMC had sold the shares in which it had an interest. 16.8.5 I have been told by CMC that the other 4 Operators that Mr Tchenguiz had positions with also closed out the positions in or around the same time. At the relevant time, we did not know whether any of the other Operators were selling or had sold any shares, in what volumes or at what price. Yesterday, Mr Tchenguiz’s legal team provided DACB with documents which are said to set out how those other Operators closed out their positions. I have tried to interpret these statements to assist the Court – the number of shares equivalent sold, average closing price, period of close out and average shares sold per day has been set out in the table below for reference.”
““It is plain from these authorities that a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an implication of a term requiring the fixing of a reasonable price, or a reasonable time. In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria … Laws LJ in the course of argument put the matter accurately, if I may respectfully agree, when he said that pursuant to the Wednesbury rationality test, the decision remains that of the decision-maker, whereas on entirely objective criteria of reasonableness the decision-maker becomes the court itself.”
“The first limb focuses on the decision-making process—whether the right matters have been taken into account in reaching the decision. The second focuses on its outcome—whether, even though the right things have been taken into account, the result is so outrageous that no reasonable decision-maker could have reached it. The latter is often used as a shorthand for the Wednesbury principle, but without necessarily excluding the former.”
“29. If it is part of a rational decision-making process to exclude extraneous considerations, it is in my view also part of a rational decision-making process to take into account those considerations which are obviously relevant to the decision in question. It is of the essence of “Wednesbury reasonableness” (or “GCHQ rationality”) review to consider the rationality of the decision-making process rather than to concentrate on the outcome. Concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker. 30. It is clear, however, that unless the court can imply a term that the outcome be objectively reasonable—for example, a reasonable price or a reasonable term—the court will only imply a term that the decision-making process be lawful and rational in the public law sense, that the decision is made rationally (as well as in good faith) and consistently with its contractual purpose. For my part, I would include both limbs of the Wednesbury formulation in the rationality test. Indeed, I understand Lord Neuberger PSC (at para 103 of his judgment below) and I to be agreed as to the nature of the test.”
“Where we have agreed to provide you with the sales trader service, if our client management team has previously agreed with you that it may suspend or override any Account Close-Out initiated by the Platform and your Account Revaluation Amount falls to an Amount at or below the Close-Out Level, our client management team may (as it see fit in its sole discretion) during UK office hours try to contact you to request payment into the Account. If the client management team is unable to contact you and/or you are unable to fund your Account within a reasonable time, it may manually close all or a portion of the Bets in respect of any Product (including those relating to Manual Products or Manual Orders) within the applicable Trading Hours and where betting is not otherwise suspended”
“35. I understand from DACB that in his Defence, Mr Tchenguiz asserts that the reasons for the fall in the price of First Group shares in mid-March 2020 (i.e. between 9 and17 March 2020 ) may have been affected by the market-wide reaction to the pandemic, which could reasonably have been expected to be a temporary phenomenon. However, in mid-March 2020, that was not clear and the fall in the share price may have been intrinsic to First Group. Even if the fall was related to the pandemic, it was far from clear that any fall in the price could be expected to be temporary (whatever temporary might mean in this context) or that CMC should have known or assumed that the price might recover in the near term. I would add for completeness that pursuant to the Contract in place, CMC was not in any event required to speculate in relation to such matters – but even had we sought to do so, it would have been very difficult to form a reliable view as to what might happen next. 36. The decisions made in relation to close-out were taken at all times based on the situation as it developed (current price and volatility), not speculation as to future price moves – CMC was in no better position than anyone else to guess what may have happened to the share price on a day to day basis. Had CMC not closed out the positions when it did, the share price could have continued to fall, making the losses on the Account higher.”
“TM There are buyers, we’ve found buyers. We had to go quite a long way down to find them so it is down 17%. OB But that’s… alright. TM I don’t know how much of that is natural. OB Do we know how much other volumes out there are selling because that is going to tell us if IG are doing that? TM There is more than normal, it looked like it was just me on the open and then it looked like more people were getting involved later on. That is just a hunch but the volumes really picked up. OB Well I’ll wait for him to call me. TM It is what it is. OB There is nothing he can really respond saying… none of that email is of any value or any worth to us. Equally we should not be discussing our exposures with 20 other people we don’t know over there on that email. … TM Well the good news is we are not all selling, well we can’t all be selling because there would be hell of a lot more gone through.”
“Spoken briefly with Oli too but just for the tapes. Chain gives us nothing new. No funds coming to support the position and no direct update from the client so we keep going as normal. Selling another 1m which will finish at 2 and then the final 1m into the close. VWAPs again with a 30p low.”
“Q. Thank you. You’ll appreciate that it appears to Mr Tchenguiz that rather than cooperate to lessen the effect on the market of what was a very substantial position being unwound with a number of brokers, it appears to him that CMC’s approach was to try and get out of the market before larger positions were closed out like that of IG, for example, and that’s a fair concern to have in light of the conversation that we see between you and Mr Basi, isn’t it? A. I don’t really see how. Again, our knowledge of whether or not other people had sold or were yet to sell was purely speculative. At that point, we didn’t realise that InterTrader had actually sold the bulk of their position already. ”
“A. There’s no conflict there, my Lord, because if there’s some suspicion that we purposefully knocked down the price or we would only be increasing the debt realised on the account, our best interests were aligned. If there could have been a way -- if the market had rallied 50% from that point before we had a chance to put anything to market, everyone would have been very happy.”
“we will always look to be as market neutral as we can be. So if a client was to buy 10,000 shares of company X and we hedged 10,000 shares of company X, we wouldn’t reduce that hedge position unless the client reduces their own position, because we would actually be increasing our risk to the market, which makes no sense.” “There’s no conflict there … because if there’s some suspicion that we purposefully knocked down the price or we would only be increasing the debt realised on the account, our best interests were aligned. If there could have been a way - if the market had rallied 50% from that point before we had a chance to put anything to market, everyone would have been very happy.”
“16. Like the judge I regardsection 5 of the Financial Services and Markets Act 2000 as of some assistance in considering the purpose of COBS 2.1.1R. That provides: "(1) The protection of consumers objective is: securing the appropriate degree of protection for consumers. (2) In considering what degree of protection may be appropriate, the Authority must have regard to— (a) the differing degrees of risk involved in different kinds of investment or other transaction; (b) the differing degrees of experience and expertise that different consumers may have in relation to different kinds of regulated activity; (c) the needs that consumers may have for advice and accurate information; and (d) the general principle that consumers should take responsibility for their decisions."” "(1) The protection of consumers objective is: securing the appropriate degree of protection for consumers. (2) In considering what degree of protection may be appropriate, the Authority must have regard to— (a) the differing degrees of risk involved in different kinds of investment or other transaction; (b) the differing degrees of experience and expertise that different consumers may have in relation to different kinds of regulated activity; (c) the needs that consumers may have for advice and accurate information; and (d) the general principle that consumers should take responsibility for their decisions."”
“99. In my judgment the Claimant was not in breach of its duty to act in the Defendant's best interests by not closing out his bets in the period from 15 September to14 October 2008 . In reaching this conclusion I have regard to (1) the fact that it is clear from the evidence that after 7 years the Defendant was a sophisticated and experienced trader, (2) he had made payments in the past when requested to do so: (3) he promised to make the payments requested during this period and in making those promises he intended the Claimant to accept them; and (4) the general principle behind the rules is that consumers should take responsibility for their decisions.”
“76. COBS 2.1.1 provides: “A firm must act honestly, fairly and professionally in accordance with the client's best interest” but COBS 2 is also excluded from counterparty business. Even if applicable, it is not suggested as such that MCA acted other then honestly, fairly and professionally. As regards the best interests of the client, this is a difficult concept in circumstances where the client is refusing to pay margin and expecting MCA to close out as best it can. MCA was in effect trading on its own account. Furthermore the interests of MCA were in common with FCO namely to limit the loss that might be sustained as a result of the liquidation. Thus I reject the suggestion if it be made that MCA were obliged by COBS 2.1.1 to manage FCO's position as if still acting as FCO's broker but at its own risk and without the provision of margin.”
“52. The first question is what degree of care Sucden had to exercise. In that regard, the parties are in disagreement as to the standards that Sucden had to observe when carrying out the liquidation. Fluxo-Cane has argued that when liquidating the account, Sucden was subject to the provisions set out in the New Conduct of Business Sourcebook (COBS) promulgated by the regulator, the Financial Services Authority. The sourcebook sets out the conduct of business requirements applying to firms with effect from1 November 2007 . It sets out rules to the effect that a firm must act in accordance with the best interests of its client, and must act subject to a best execution obligation. I believe it to be common ground that COBS would apply if Fluxo-Cane was categorised as a “professional client”