Ambiguity on WTI rollover of CFD by Broker House (Help Needed!!)

[Ralph Benitez]

Hi,

Broker here (def not the house you are referring to). The gap is normal, but the spikes are not. Rollover is generally the responsibility of a customer in most customer agreements. Some brokers do auto rollover some do rollover on request. You won't experience this problem with rollover on request companies because you know there is an actual contract being rolled over (most of the time). Auto rollovers are usually booked and manipulated very regularly, which appears to have happened in your case. It also can have strange 'fees' involved as well.

Those weird feed spikes that are not tradable are the responsibility of the broker. I can't find those spikes anywhere else, and if they affected your trades you should hunt your broker for compensation.

Regarding your above query about rollover, sometimes pre-rollover orders can become close only 3 days before, but it is rare to rollover before the contract expiry. If the company is regulated it is possibly a breach of their license as it wasn't due to rollover. You would need to check their product agreements as perhaps it says "we have the right to do whatever I want to your orders and you can't do anything about it" as a large number of bucketshops have.

Hope this helps.

 

[Ronin_ClientProtect]

Dear Ralph,

First and foremost, thank you very very very much for your insightful and kind response. I represent a few people and am quite in the dark in regards to issues pertaining how broker houses manage their rollovers, so really, thanks a bunch!

To further inform in regards to your pointers, the broker house I am affiliated to performs "áuto-rollovers" and unfortunately this is stated clearly in their policy. I do agree however that the following 'spike downwards' and then 'upwards' again come off as pretty ridiculous and manipulative. The broker house has already given instruction for this to be removed from the MT4 platform and these charts are not reflected anymore. I have multiple screenshots as evidence though. By the looks of it, it certainly seems like they were running an unmatched order book and they did a great job covering by triggering 'stop losses'. I have tried hunting them down for compensation for myself and all those who were affected. Sadly, still to no avail.

They state in their policy that they have the right to close off investor positions at the date of expiry, and where possible to re-enact the said positions with the same amount and type on the day or the next. The date of expiry however, is nowhere indicated in their policy and it was mentioned through my correspondence with them that rollovers are 'determined by their liquid provider' and is a process which happens automatically. In my experience, this is indeed a first I have heard of a company not being able to be definitive about their rollover date, hence their explanation sounds like crap to me.... is this even possible?

Their product agreement does not cover much else. Their base of operations is in New Zealand and I am currently in correspondence with the respective authorities to obtain some information. Thank you very much for mentioning that this could lead to a breach in their license. I will make sure to channel my questions to cover this angle.

However on a separate issue, In regards to the information provided by you that rollovers can take place 3 days before, I'd like to point that this spike exist for several other broker houses I have come across. The rollover was mostly done on the 19/02/2016 and the end result is illustrated below:



You may check out these two other very reputable brokers as well:
i) https://www.dukascopy.com/plugins/fxMarketWatch/ - Chart
ii) https://www.dukascopy.com/swiss/english/marketwatch/calendars/cfd-price-adjustment-calendar/ - Contract expiration / rollover policy

i) https://www.dailyfx.com/crude-oil - Chart
ii) https://www.fxcm.com/uk/markets/cfds/oil/ - Contract expiration / rollover policy

I have come to realize that there's a noticeable pricing gap between a broker house'es rollover date and the actual last trading day as of late; for example as illustrated above, the March, 2016 contract which last trading day is on the 22/02/2016 compared to rollovers done on the 19/02/2016. Prices eventually would contango but if a huge pricing discrepancy exist prior to rollover date....hmm can't traders take advantage of this?

WTI Futures indicative reference price: http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html

Thanks for the information Ralph! Really appreciate this!
Thanks for sharing! God bless!

 

[Ralph Benitez]

Mate, if it is NZ you are dealing with. You probably need to just move on, nothing will come of it.
If you need a hand, I can try to help but with the FSP nothing generally happens.

Price gap on rollover is normal. Generally a broker will show both contracts if they are actually hedging with futures. For example, If CL is the symbol, you will have CL_monthofexpiry and CL_nextmonthafterexpiry and you can compare the two. This months rollover was particularly different. It was evident two days prior to rollover that the market would gap up due to the huge difference in the contracts at the time there was no way the prices were going to meet.

Either way. I wouldn't waste too much time trying to get money back from an NZ company, keep pushing the communication and you shuold probably publicly state who the company is to apply more pressure.

Given that you have already described their attitude towards FPA (blackmailing) then I already have a few ideas in my head as to who it is as there are only a few who actually openly state that.

Cheers,

 

[Ronin_ClientProtect]

Dear Ralph,

I can't thank you enough for all the useful insights you have provided to us.
Good on you mate! Thank you very much
I am now reading up on why websites such as the one below point out that NZ has limited regulation:
100forexbrokers.com/forex-regulation

I understand your explanation....erm is there a chance that large gaps in brokerage houses will be more noticeable moving forward (for example, due to increased storage cost priced in for physical WTI over the longer term contacts VS. high downward pressure on spot prices)?

I am still corresponding and am waiting on both FMA and FSP to provide me with a response. Sadly, I have lowered down my expectations quite a bit after reading your reply! Hahaha...no matter...I will keep pushing the communication and keep you and everyone here updated on the matter.

Yes I agree with you. They have rather rude representatives; mafia like almost. I have encouraged clients and IB's to stop all trading of WTI futures with them. In all honesty, I am affiliated to quite a number who draw a certain sum of income from introducing and through 'copy trade' synchronization. It will be unfair for those who have had no trouble with them so far to have to unplug their source of income due to this matter. I fully understand that this is conflicting somewhat but as a mitigation for now, stopping all trading of WTI futures is the best option I can think off. Moving forward, I shall try my very best to seek for an alternative solution.

For those who are interested to know which broker this is, please PM me and I'll be happy to share further. Personally, I have had no problems with them prior to this. However, this recent experience does indeed leave a rather black spot.

Once again, thanks so much for your kind help and advice buddy!

p/s: For amusement purposes, this was their last response to me. Pretty sarcastic I'd say. I guess professionalism has sunk to pretty low levels in some companies:

Dear customer,

It seems that our correspondence goes around in circles. The Legal Documents are there for a reason - they define both parties' rights and obligations to the contract we have entered when you opened an account with XXX. As such they are to answer questions of yours of the type you have asked in your previous emails.

As for the rollover - yes, it happens automatically, based on the price feed and terms set forth by our liquidity providers. Our execution policy does not present any contradictions.

As to your numerous statements that you are to seek information from "the markets" - this is an excellent decision of yours. This is one of the advantages of our living in a high-tech and integrated world where you have a lot of information readily available. Therefore we hope that the matter is cleared to you in a matter which satisfies your never-stopping need for information.

Regards,

 

[Pharaoh]

1) Is there really no standardized rollover dates between broker houses?
2) What are the governing laws for WTI/Brent Futures contract rollovers between countries?
3) Can the broker house chose to not disclose their rollover dates to the public? (Red signal for deliberate trigger of stop losses; even clearer when price came down again in regards to my illustrated example)
4) What is the bigger picture of the 'technical error's link to this issue?
5) Is there anything else I am missing out in regards to this issue?

1. You would need to check with multiple brokers. If the contracts are exchange traded, the rollovers would be set by the exchange.
2. Laws vary by country. If you or the broker is in the USA, then the CFTC would be the place to start. If it's NZ, see what dispute resolution scheme the broker belongs to.
3. Depends on local laws. Personally, I wouldn't do business with any broker which wouldn't clearly disclose all information regarding trading products.
4. First, you need to determine if "technical error" is something that happened or if it's a lame excuse.
5. Probably, but getting the above resolved will make it easier to find out what may have been missed.

 

[Ronin_ClientProtect]

Hey buddy,

Thanks for your kind advice.
I think you can refer closer to the info Ralph has provided. He's given us some pretty awesome pointers and raised some great points!

In response to:

1. You would need to check with multiple brokers. If the contracts are exchange traded, the rollovers would be set by the exchange.
2. Laws vary by country. If you or the broker is in the USA, then the CFTC would be the place to start. If it's NZ, see what dispute resolution scheme the broker belongs to.
3. Depends on local laws. Personally, I wouldn't do business with any broker which wouldn't clearly disclose all information regarding trading products.
4. First, you need to determine if "technical error" is something that happened or if it's a lame excuse.
5. Probably, but getting the above resolved will make it easier to find out what may have been missed.

My findings:

1. I agree contracts are exchange traded. Have a look here:
http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html

However, just like how other futures contracts are traded over the exchange for hedging purposes; following month contracts have movable prices due to daily trade activity. Meaning to say, the market as well as some brokers allow you to trade contracts ahead of the typical 'near' (1 month) widely offered contract. For example, Dukascopy is one of these brokers, Saxo Bank might be as well maybe? Just guessing the bigger guys have this segments covered. Like a fixed deposit (FD), it pretty much depends on your placement period / maturity date.

Rollovers however, are a separate issue. In other words, it is totally possible for the broker houses liquidity provider to conduct a rollover on any date. The usual practice is on a certain date close to expiry (but not necessarily on the date of expiry itself; best practice for brokers seem to be a few days prior to expiry to avoid physical delivery issues, etc).

The broker house'es nondisclosure of this date however, makes it a little ambiguous. I have obtained new info yesterday on their rollover after poking around as follows:

"The rollover happens one a month. Get the 25th of the month, subtract 7 business days and you get the starting date. It lasts for 3 business days:
Example: August 25 – 7 business days = 15 August. Rollover ends on 17.08".

This somehow conforms with their previous rollover done; which is however done at a slightly earlier date compared to other broker houses. Existence of such gaps allow for arbitrage opportunities. For example when market is set to contango, BUY futures on current broker house and SELL futures on another broker house. Consider the following scenarios in a typical one month WTI contract:

i) If rollover indeed happens earlier, then the gap will be your profit.
ii) If rollover happens earlier but next 'near' futures has been heavily traded to better reflect current contract price, the gap will still be your profit as you have sold early as well on the other end.
iii) If rollover happens on the same time compared to other brokers, in the event there is no 'actual gap'; then you might be looking at a loss in terms of 'brokerage fee' and 'rollover cost'.

2) If it's New Zealand, the major ones are the Financial Dispute Resolution (FDR) and Financial Markets Authority (FMA) with links provided below as follows:

i) FDR - http://www.fdr.org.nz/
ii) FMA - https://fma.govt.nz/

Note however that NZ has the ****iest regulation over brokers. It clearly states that regulation of entities are limited. They have come under heavy criticism for this following many customer complaints over delinquent brokers. More info on this is as follows:

i) https://www.100forexbrokers.com/forex-regulation
ii) http://www.financemagnates.com/fore...klash-against-forex-brokers-hits-a-roadblock/

3) Agreed. I am looking at a gradual switch to an entity which is more reputable for both the benefit of our marketing agents and clients over the longer term.

4) I'm almost certain it's a lame excuse. However, I have to agree on Ralph who views that not much can be done. Firstly, they have agreed that rebates would be given on the spike back 'downwards' not 'upwards' as they latter amounts to a justified 'rollover' on the 17/02. Secondly, due to such crappy regulation, they are in no ways obligated to disclose any further information to me. The info would be deemed as 'sensitive' and only a court order can make this happen. For such a small magnitude of loss, I rather forgo this and buy you guys drinks instead! Hahaha.....However I do encourage those who have suffered heavy losses to go all out on this issue. Losses on our end as a whole do not amount to more than USD$1,000. Many of our guys do not touch WTI. Therefore, definitely not worth the trouble if u ask me.

5) I guess with all said, much has been resolved. The next I'm going to do is go in large early before their next rollover and see what happens. If there is indeed a gap, then following my explanation above, I should be entitled to the profits; just like how I was allowed to hit SL previously. Let's see how this goes

Cheers all!

 

[Pharaoh]

Good luck. BTW - I love the concept of trying to arb any early rollovers. If that works, you could make them wish they followed their own rules more closely.