Legal Agreements for Electronic Execution

[london]

Against my better judgement, I'm involved in a spat between lawyers over an electronic trading agreement.



Our lawyers are currently bitching at a large bank about how one-sided their proposed agreement is. Drafts of this agreement has been going back and forth for at least 4 months and i'm being dragged into a meeting tomorrow to try to put an end to it.



Basically we're saying: "your proposed agreement is too one-sided, you should take responsibility if you or your system f*cks up."

And basically they're saying: "its a standard agreement, we can't negotiate it" (however they already conceded on a number of terms)



Below are a few abridged clauses to give some colour.



My questions, to anyone who has more experience with these type of legal agreements than I, are:

1) how much negotiating power can I expect? (we are a large investment manager, they are an american bank)

2) Is the arse-covering language standard industry practice and non-negotiable?

3) Or is this just lawyers being lawyers? (so I should leave them to argue it out for a few more weeks / months...)



Thanks in advance to anyone able to comment from a position of experience.

Feel free to contact me privately (email in profile) if any comments are off-the-record.

Ideally, I'd love to get my hands on similar agreements (with client names removed, anonymity guaranteed). If I can get examples, I can demonstrate that our proposed agreement is either normal (so turn to our lawyers and say: "its normal, sign it!") or not normal (so turn to theirs and call them out on it).





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Example terms to give a few examples (Adviser = investment manager (ie my shop); XXXX = big american bank)





"Adviser represents and warrants to define parameters (authorized users, products, order types, trading limits, etc)."

"XXXX is expressly not liable if any parameters are breached or any failure of the system to monitor them."



Advisor has nominated and named 8 big cheeses (CEO, COO, Ops head, Compliance head, etc, etc) as authorized to set parameters.

"XXXX shall not be responsible for (i) establishing any Parameters; (ii) monitoring activity against the Parameters; (iiii) any failure of the System to enforce the Parameters"



"Advisor agrees to be bound by any instructions to XXXX, if XXXX believes they came from Advisor regardless if Advisor actually gave them."



"Advisor shall immediately report to XXXX any known or suspected failure in communications between the parties. XXXX will attempt to contact an exchange, Network provider, third party System provider or any other relevant party. XXXX will not be liable for failure to contact such provider or party."

[signalseeker]

I assume "big american bank" is your PB. I have seen a number of situations like this over the years and ultimately it comes down to how much they value your business. Obviously, they should be held responsible for their systems fucking up and I can't remember a single occasion when we had a problem with that. IMO the key here is your sales broker - he is the one getting your account. Perhaps you could use their competitors as leverage to make the changes that you want



For the examples you mention, they should definitely be responsible for enforcing and monitoring limits, order types, etc. If they are not doing any of that, I would advise you to find another "big american bank".

[FDAXHunter]

It's like signalseeker says: It just depends on how much they value your business. Of course they can change it, but it would involve many layers of red tape and sign-off. If you're important enough.



It's standard for these things to be relatively one sided. The main risk here comes from the user (i.e. the client) not from the system itself. What can they do that will really expose you? If their system goes down and you can't trade, well you need a backup execution route anyway, so it's really in your interest to make sure that this doesn't affect you. Do you want to trade, or are you trying to get paid if you can't trade? The latter seems like mixing up your business priorities.



If you're worried about their system sending incorrect orders, well, that's not so much your problem, because the audit trail (yours and theirs) will show what you did, so if their system goes haywire, it's really their problem. And again, the burden is really on you to make sure there are alternatives in place so your business is not interrupted.

[YukaRedux]

Had the same issue a few years ago, and resolved some of it with a separate governing document - all the boilerplate stayed in the main contract, but was subject to the addendum terms. For example, you might be able to redefine the "instructions" part of "Advisor agrees to be bound by any instructions to XXXX" far more tightly in the addendum, such that only Bloomberg instructions from trader to trader, or only with a call-back confirm, etc, count as valid "instructions" for the purposes of the agreement.

[goldorak]

Very interesting thread as it shows what the finance industry has really become over the year: lawyers fighting with other lawyers. Symptomatic of the industry: no one is in charge, everybody from the regulator to the CEO hiding behind a wall of lawyers.



To answer your question london, I join the others on their answers. It is all about how much they value your business, and in some very seldom cases (I tend to think these people are almost extinct nowadays) how much they value their long-term relationship with you.

[sharpend]

I know people who have taken 6 months and they were high value clients



This is probably a long shot, but I have seen it work at a bank that is particularly difficult to deal with: Both prime brokerage and execution had many regional offices and it was possible to cut a better deal with one of the them when another was difficult. Still not fast and personal relationships probably helped.



Not only does in matter how much they value your business, but also how much weight the person managing the relationship has at the bank



This clause seems terrible to me:



"Advisor agrees to be bound by any instructions to XXXX, if XXXX believes they came from Advisor regardless if Advisor actually gave them."

[london]

Outstanding comments, gives me some good perspective.

Thank you all.



SignalSeeker / FDAX: Yes, its clear they don't see the commissions we generate as being integral to their bottom line...



I'm going to suggest Yuka's approach of getting more specific in an addendum. The relationship manager is - I believe - fairly junior so won't have much pull (sharpends point), so even that may not get anywhere



To follow-up on goldoraks pint: not only does this thread show how the lawyers have taken over in recent years, but also how I can get more useful info from anonymous associates on the internet in 12 hours than i can from in-house legal counsel over several months!



Was very much appreciated. thank you NP!

[kc11415]

london>they're saying: "its a standard agreement..."

while in a literal sense that might be technically true, it has been my observation that use of that phrase NEVER has an honest intent, regardless of the industry or context.

i.e. the minute I hear someone attempt to make such an argument I take that as an admission by them that they know they are full of shit and that they know that you know they are full of shit, yet regardless they are daring you to make an issue of it.

Such a statement is their way of saying, "How could you possibly think anything other than, BOHICA."

i.e. "Don't you know you're supposed to grab your ankles and ..."

i.e. "Don't you know your place in this arrangement?"

[NIP247]

Having sat on both side of the fence, my view is that the value of the business is important up to a point. Beyond that, the drafting team only have downside whereas the front-office only looks at the upside. I only know of one firm that take a holistic view of business opportunities. For the rest (and especially among the survivors in this environment) , legal & credit have the last word (if you're not a 10mUSD+ annual account)