Account keepers informed of a clearing of the central order book by Euronext must inform affected clients
Investment service providers must transmit or execute client orders in the order in which they are received, and promptly - unless the nature of the order or prevailing market conditions make this impossible, or the interests of the client require otherwise. They must also inform retail clients of any serious difficulty that is likely to affect the correct execution of orders as soon as they become aware of the difficulty, at the risk of exposing them to loss of market opportunities, as was the case here.
Thus, a clearing of the central order book by decision of Euronext must be considered as a serious difficulty likely to affect the proper execution of orders, and the account keeper must, as soon as it becomes aware of such an event, warn its clients in order to give them the opportunity to place their orders again as soon as possible.
Facts
In his referral, Mr D. informed me that he had placed an order to sell 1,000 V. shares on 30 March 2022, at the limited price of €18, and that he had given this order a "month" validity, i.e., an end date of 30 April 2022 [1].
However, Mr D. told me that on 14 April he had noticed that his V. shares had not been sold, even though the price limit of €18 applied to his order had been reached.
In this context, Mr D. questioned his account keeper, institution X., who replied that the order book had been cleared and that his order had been cancelled as a result.
Mr D. had not been informed of such a clearing, and in his request for mediation he argued that without information about the clearing, his sale order should have been executed. Mr D. therefore considered that X. had committed a fault.
Following this event, the share price fell, and Mr D. told me that he had sold his V. shares at €11.03 to avoid further losses.
With regard to his loss, Mr D. claimed compensation for the difference between the price at which his shares were sold (€11.03) and the price at which his shares would have been sold if his order had not been cancelled, i.e., a total of €7,770.
It was in this context that Mr D. contacted me, seeking compensation for the loss he felt he had suffered as a result of his order being cancelled - without prior notice - due to a clearing of the order book.
Investigation
I asked account keeper X. about the circumstances of the order book clearing that led to the cancellation of Mr D.'s sell order.
In its reply, X. stated that the order, entered on 30 March 2022 by Mr D., had not been cancelled on 14 April as Mr D. had thought, but had 'fallen' due to a clearing of the central order book scheduled for 31 March 2022.
According to Euronext, on 18 March 2022 it published a notice to account keepers informing them of its decision to change the tick sizes of certain securities, including the V. share, and of the purging of the central order book on 31 March 2022 as a result of this update.
X. informed me that Euronext had not notified its clients of the clearing of the central order book.
According to X., it was Mr D.'s responsibility to refer the matter to a new investigating authority once he realised that his order no longer appeared in the order book.
In conclusion, X. told me that it did not wish to respond favourably to Mr D.'s request for compensation.
Recommendation
I have carefully examined all the information in this dossier.
In this case, I noted that Mr D. had sent an order to sell 1,000 V. shares on 30 March 2022 at the limited price of €18, with an expiry date of 30 April 2022. In principle, therefore, this order was valid until 30 April 2022, unless executed or cancelled.
It appeared to me that the disputed order had indeed been entered into the Euronext order book but had not been executed immediately. The order book had indeed been cleared by Euronext before the order could be executed, without Mr D. having received any information on this subject from establishment X.
A clearing of the central order book means that the market operator deletes orders awaiting execution in the central order book. Certain securities transactions or administrative operations result in the cancellation of orders in the order book. These specific rules are set out in Euronext Instruction N4-01, more commonly known as the Trading Manual (article 2.7 ORDER MODIFICATION OR CANCELLATION).
In this context, I first noted that Article 67(1)(c) of the EU Delegated Regulation on organisational requirements and operating conditions for investment firms (2017/565) provides that investment service providers must inform their retail clients of any serious difficulty that may affect the proper execution of orders as soon as they become aware of the difficulty.
The question was therefore whether institution X itself had been informed in advance of the clearing of the order book.
In principle, when an order book is cleared, Euronext sends a notice to its members informing them of the need to renew client orders. This information is also freely available on the Euronext website.
In the present case, in view of the documents sent to me, it appears that X. was in fact informed of this clearing on 18 March 2022.
Therefore, I considered that the institution X, which had been informed that its clients' orders were to be deleted from the order book, should have informed them, as required by the Delegated Regulation, in order to give them the opportunity to renew their instructions.
In the light of the foregoing, it seems to me to be incorrect for X. to consider that a clearing of the central order book by Euronext should not be communicated to its clients.
Furthermore, according to Mr X., it was up to Mr D. to apply for a new order. As Mr D. had not been informed of the said clearing, he had not been able to do so. Furthermore, in the absence of any confirmation that his order had been executed, and in so far as it was valid until 30 April 2022, it seemed to me that Mr D. could legitimately believe that it had not yet been executed.
Consequently, I informed X. that Mr D. should be compensated for the fact that he had not been able to sell his 1,000 V. shares at the minimum price of €18, i.e., at the limit set by the client, which was reached on 14 April, as I was able to verify, because he had not been informed by X. that his order had fallen due on 31 March 2022.
I therefore offered the client compensation of €7,700, which was accepted.
Lesson to be learned
While investment service providers must transmit or execute client orders in the order in which they are received, and promptly - unless the nature of the order or prevailing market conditions make this impossible, or the interests of the client require otherwise - they must also inform retail clients of any serious difficulty that may affect the proper execution of orders as soon as they become aware of the difficulty.
Thus, a clearing of the order book must be considered as a serious difficulty likely to influence the proper execution of orders, and the account holder must, as soon as they are aware of such an event, warn their clients to give them the opportunity to place their orders again as soon as possible.
In addition, this case was successful because Mr D. had assigned a "month" validity to his order. His order was therefore still valid after the clearing. This would not have been the case if his order had only been valid for the day, since in the latter case the order would have fallen at the end of the trading day on 30 March 2022.
Investors should pay close attention to the validity periods assigned to their orders, especially as month-to-month or revocation validity periods may not have exactly the same meaning depending on the institution's general terms and conditions.
[ 1 ] Institution X stipulates in its account agreement that orders sent during the four trading days before the end of the month are valid until the end of the following month unless the client specifies otherwise. In this case, as Mr D. had sent his order on 30 March, i.e., in the 4 days preceding the end of the month, it was valid until 30 April.
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