The CFDs Weekly podcast is back with another episode. This time around I spoke to Sophie Gerber, an expert of all things regulation. We spoke about payments, Google’s new ad policies and looked at whether or not PFOF can be a thing for brokers. Most exciting of all, Sophie talked about a class action lawsuit against one major broker in Australia.
You can listen on Apple Podcasts and Spotify (or read more about another class action lawsuit below).
IG Group are getting sued
Here’s something that happened recently…
Equity market broker IG Markets faces a proposed class action representing as many as 20,000 investors over its marketing of contracts for difference (CFD).
“Commercial law firm Piper Alderman and litigating funding firm Omni Bridgeway announced the proposed class action on Tuesday, saying the UK-backed IG Markets consistently marketed CFDs to ‘inexperienced’ investors.
The lawyers said the total losses of investors with IG Markets exceed [AUD]$800 million. The proposed class action will also claim investors were able to trade CFDs without IG Markets applying adequate checks and balances.“
Now I know many of you may be thinking a couple of things:
- Haha IG
- Haha David, who wrote an article saying IG are great not that long ago
Fun as schadenfreude can be, there are reasons why this might not be good for other brokers operating in Australia today.
At the crux of the case being made against IG is the idea that it sold products to retail investors that weren’t suitable for them. Because they weren’t suitable for them, IG bears responsibility for their losses and should reimburse them.
Would it be that surprising if customers that didn’t know much about finance / trading had traded with IG during the past decade? Probably not. It is harder to imagine that they weren’t made aware of the risks that they were taking on though.
As for the argument itself, I don’t think it makes much sense. It implies that the products weren’t suitable for clients because they lost money. Presumably the profile of the clients that made money wouldn’t be very different. Somehow I doubt these people will be eagerly rushing to hand back their profits to IG Group because the products they traded in weren’t suitable for them.
Defining suitability by whether or not a client made a loss also seems illogical – what investment product leaves 100% of clients in the red? There is also a timing question. For instance if you had bought units in Fundsmith at its peak, you would now be down. If you’d bought them a decade ago, you’d still be well in the red. So would that mean those units were unsuitable for the person now sitting on an uncrystallised loss but suitable for the person with an unrealised gain?
Alas, I am just some random guy and so Australian courts don’t care what I think.
What could be negative from the wider sector’s point of view is if the people filing this case win and then set a precedent by which other brokers can be taken to court (and presumably lose as well). If there is also a legal case in which it’s shown that retail traders should not be using CFDs, then it seems plausible that could lead to much harsher restrictions on CFD sales to retail traders in Australia.
What makes me believe this won’t happen is how this case has been structured. The law firm leading the case, Piper Alderman, has launched it via another company called Omni Bridgeway.
This latter company raises funding for commercial litigation cases. So law firms can go to them and then raise money from lots of people that want to pursue a class action lawsuit against a given company. Their website for fundraising almost looks like a crowdfunding platform.
What’s also funny about this is that people that want to join the lawsuit have to read a disclaimer about suitability, as well as a product disclosure statement, before they can actually put any money into the case. So people joining a legal case which is about products not being suitable for them, have to read two documents to ensure that funding the case is suitable for them and they understand the risks involved.
The other funny thing is that if you have a case on Omni’s platform, you do not have to return fees if you lose the case. So this is basically a win-win for the lawyers, who will get paid regardless of the outcome.
What that suggests is some lawyers…
– Saw a bunch of people who lost money in a way they believe is unfair
– The lawyers have a platform by which they can raise money from these people to try and ‘win’ that money back
– Even if they don’t win that money back, they will get paid. Also they can use it for good PR (as they have done already) to make it seem like they’re awesome people fighting against evil brokers.
Maybe I’m being overly cynical but it does seem plausible this is what has happened. And if it is, it’s actually a very CFD-y broker way of thinking – maybe all the lawyers at Piper Alderman can get jobs at IG once the case is done!
MetaQuotes vs TradingView
I like to think that today, far away on the shores of a balmy island in the Eastern Mediterranean, a modern day version of the Merchant of Venice is playing out. Except instead of Salanio and Salarino it’s Sergei and Stavros, and instead of meeting on the Rialto to discuss Antonio’s ships, they’re having lunch at the Wagamamas on the Limassol Marina to talk about Renat Fatkhullin’s trading platform.
Back in the real world, where rumours run as freely as on the Rialto, we hear that MetaQuotes is putting pressure on brokers to stop using TradingView. They are allowed to do this because brokers using their services sign contracts agreeing not to connect third-party terminals to MT servers.
But lots of brokers and tech providers do this anyway and have purportedly faced no problems in doing so. It’s only TradingView brokers that seem to be facing problems.
What’s interesting about this is that it seems to have coincided with MetaTrader 5 launching a new web terminal that looks mightily similar to the TradingView terminal. According to a post by someone from Devexperts, the MT5 terminal may even use some of TradingView’s code.
To be fair, Devexperts are a competitor of MT and so have reason to be harsh. Plus there are only so many ways you can do a chart. Still, it is really similar. Who knows what’s going on here – you can try to spot the difference below.
It goes without saying that these are rumours and so aren’t confirmed. From the outside it feels a bit like MTQ are trying to push water uphill though. It kind of reminds me of football videos on YouTube. In the past, broadcasters would copyright strike every highlight reel that was uploaded after a match. Clearly they realised this was a losing battle and so they just started uploading the highlights themselves. Somewhere here there may be a lesson for the MetaQuotes team but I’m not sure what it is.
