Deliverable FX company Ace FX did not honor pre-ordered rates post-Brexit, blames XE.com feed
Deliverable FX firm Ace FX did not honor the price of an order made 3 days before the referendum, said that XE.com price feed ‘crashed’.
A retail customer ordered £1000 worth of Euros from deliverable FX provider Ace FX in the UK on June 21, 2016, which was due to be delivered to his home address on July 1, however he has now received an email from Ace FX CEO George Williams explaining that this will not be honored.
Despite the order having been placed three days before the referendum took place, Ace FX apparently decided to renege on the deal.
According to the statement made by Mr. Williams, because of the result of the referendum, the live industry rate feed from XE.com was unavailable, making it impossible to price, however the customer concerned considers this to be an invalid reason, because this occurred three days after the order was placed.
With spot FX trading, for firms placing trades via a direct market access (STP) model in which they send the orders directly to the liquidity provider, there would be more legitimacy in such a response as the interbank FX desks in London increased the spread on GBP pairs by half a cent during the referendum period, and there was a liquidity shortage, therefore a solution to avoid either orders not being filled, slippage or exposure to negative client balances due to extreme volatility would be to follow the price feeds provided by liquidity providers and prime brokerages and then b-book the trades.
This, however does not apply to deliverable FX deals in which the order had been placed and priced three days before the referendum took place.
Ace FX explained to the customer concerned that a rate of 1.28 Euros was provided, however on its website on Tuesday this week it was quoting 1.18, which is a £100 difference compared to what was agreed on the original order.
Intervention by mainstream media resulted in contact from Mr. Williams, apologizing for this, and blaming the matter on the inaccessibility at a time of such high volatility on inaccessibility of the XE.com feed.
A highly experienced FX introducing broker who conducts a substantial amount of business to Western FX firms from his base in the Asia Pacific region explained to FinanceFeeds “Xe-com probably had no provisions to disable certain apps on their website during volatile periods.”
“ForexFactory and the like will often disable certain aspects of their site prior to news announcement to help with the load balancing. For example, there is no need to load the full economic calendar when people are only interested in NFP for those 10-15 minute window. therefore they could have reduced the scripts running on the page to just the essentials” continued the IB.
He further explained with regard to maintaining the ability to stick to prices of one currency against another as best possible “Liquidity dried up during the Brexit period, meaning that brokers couldn’t hedge. This appears to indicate that once again, only b-book brokerages will likely be able to weather this without liquidity shortages.”
“I saw one broker in America with spreads that were regularly 20-50 pips throughout the entire 8 hour period, especially for GBPJPY and GBPAUD. Now just a few hours later with a broker in Australia, the spreads were occasionally >10 pips for GBPUSD, but it reflected what the real market was doing. So if the spreads were really only 3-4 pips, traders had access to that (information) and could trade it” explained the IB.
“Would you really want to trade b-book with 25-40 pips spread if the real spread was something like 5 pips, both situations with real slippage anyway?” he asked.
Ace FX made a company statement on the matter, explaining publicly today to the mainstream news “On the night of the referendum, our services were supposed to be suspended, like many other companies. However, due to a technical fault, our systems continued to accept orders throughout the night.”
“Typically, we have around 100-200 orders a day. This increased to over 1,000 orders. The vast majority were from new customers trying to benefit from incorrect exchange rates and the majority of these orders were placed during the middle of the night.”
‘Unfortunately, we cannot honor these orders without jeopardizing the future of our company and its staff. We have built this company from 30 customers a day to over several thousand a week over the last seven years.”
“Although we were unable to honor postal orders, we honored all of our customers who topped up their prepaid travel cards, as well as trying to honor as many collection orders where possible.”
“It is worth noting that we could have cancelled all of these orders as per our terms and conditions, however, we decided (where possible) to honor these orders, which has resulted in massive losses to our business. We simply could not honor all postal orders due to financial restraints. It is worth noting that, up to the point of delivery an order can be cancelled at any time. This is clearly stated within our T&Cs”