UK court allows ThinkMarkets’ “obscure” B-book claims against IS Prime

Rick Steves

“The Judge added that “Think did need to address the concerns expressed” as its counterclaim “suffers from a lack of detail, obscurity and potential inconsistency”.

The IS Prime v. ThinkMarkets case will see more of ThinkMarkets’ counterclaim concerning losses allegedly generated on its B-book.

Judge Adrian Beltrami QC of the UK’s High Court of Justice has struck out paragraphs 66 to 70 of the Re-Amended Defence and Counterclaim made by ThinkMarkets against IS Prime. These regard losses and restitution on A-Book trades, which involve matching transactions with the liquidity provider.

The court denied IS Prime’s motion to strike Paragraph 71, which relates to the B-Book business with ThinkMarkets. “B-Book” trades carry no off-setting hedge, leaving ThinkMarkets to internalise transactions with customers. Absent a market hedge, B-book transactions exposed Think to market fluctuations and so carried both greater risk and the potential for greater reward.

According to Nauman Anees, the Co-founder and Chief Executive Officer of ThinkMarkets, the broker executed A-book trades and B-book trades on a 30% – 70% split, respectively, with approximately 60-65% of revenue deriving from profits on the B-book. Additionally, commission revenue represented less than 10% and mark-ups on pricing (applicable to both A-book and B-book trades) made up the remaining 25-30%.

In IS Prime v. ThinkMarkets, The plaintiff claims Think Markets breached the agreement and caused a loss of approximately $15 million. The defendants allege it was the other way around.

B-book goes on trial

As to the alleged B-book losses, IS Prime’s strike out application had to proceed on the assumption that such losses existed, in order to enable the Court to deal with the arguments summarily, but that is not IS Prime’s position.

The prime broker contends that any such losses were not legally caused by the breaches of contract or torts alleged. The service did not encompass, on this argument, the provision of price information for use by Think where there was no matching hedge, namely on its B-book.

The court agreed with the ThinkMarkets’ argument that even that IS Prime is on the point about contractual purpose, this would not mean that Think’s use of the price feed was sufficiently unreasonable to cause a break in the chain of causation. 

“My views on the applicability of Appendix 1 are themselves probably fatal to IS Prime’s application”, but contextual evidence is required, he said, adding that there may well be a bigger picture which will be more safely determined, to the extent necessary, at trial.

“Ultimately, issues of causation such as this are inherently fact-sensitive and, unless there is a surgical legal point which can disable the case regardless of the facts, they are likely to be unsuitable for summary determination”, he continued. The court also noted that “rules of causation are often manipulated in favour of deceit claimants”. 

“For these reasons, I dismiss the application insofar as it concerns causation under paragraph 71 of the Re-Amended Defence and Counterclaim.

ThinkMarkets’ B-book claims allowed but potentially inconsistent

The Judge also reflected on whether there is a proper pleading for B-book losses. This “discrete issue” includes two related areas of concern:

  • legitimate price arbitrage techniques” as a means to generate profit at Think’s expense, as a consequence of the “uncompetitive price feed” received from IS Prime
  • a series of underlying calculations by which Think compared the prices contained in IS Prime’s price feed against a range of alternative counterfactual price feeds

The court agreed with IS Prime, who complained that the legitimate arbitrage techniques’ argument doesn’t fit with the pleading based on counterfactual price feeds as the latter exercise is by definition hypothetical.

“The counterfactual exercise reveals a further obscurity in Think’s case”, the Judge explained. “As I have described above, the central pleaded complaint is that IS Prime wrongly added margin to the Tier 1 prices. Assuming that to be so, the source of Think’s loss on their B-book is not obvious”.

IS Prime applied to strike out with the focus of the attack being on the pleading about arbitrage techniques. The court didn’t find it “a proportionate response to the complaint made, at least at this stage”. 

The Judge added that “Think did need to address the concerns expressed” as its counterclaim “suffers from a lack of detail, obscurity and potential inconsistency, and there are also broader concerns about how the methodology of calculation fits with the breaches of duty and other causes of action alleged”.

The court ruled that ThinkMarkets’ counterclaim regarding the B-book losses would be allowed.

IS Prime and Think Markets comment on the rulings

A spokesperson for IS Prime said: “This is a strong and significant result for IS Prime. The Judge’s decision in summarily ruling out the majority of Think’s claims is a clear vindication of IS Prime’s position that Think’s defence of these proceedings, and the claims and allegations which it has made in them, are without basis.

“The Think claim which remains has been heavily criticised by the Court for its “lack of detail, obscurity and potential inconsistency”. These rulings are entirely consistent with IS Prime’s view and we welcome the fact that Think must at last address the obvious problems with its case.”

“ThinkMarkets welcomes that IS Prime’s attempts to strike out the vast majority of its counterclaims have been rejected, and is focussed on the next stage of the proceedings”, said a spokesperson for ThinkMarkets.

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