Disgruntled retail investors are pondering a class action against CMC Markets alleging the derivatives provider unfairly reset pricing on an oil futures product amid a bout of extreme market volatility.
According a NZ-based investor caught out by the move, late in April CMC reset the reference point for its West Texas Index (WTI) crude oil cash product to the December 2020 commodity price rather than forward month value as per normal.
The NZ client, who wished to remain anonymous, said the CMC repricing call, along with an increase in contract holding costs, left many investors deeply out-of-pocket who otherwise should have profited from the April oil price fluctuations.
“My losses amounted to approximately $87,000 plus holding fees which I still need to calculate. I have a second account with two friends which also lost $45,000,” the CMC investor said.
“These actions were taken without notice to or consent from these investors, with no compensation offered to investors who had already purchased under the original product rules.”
He said a group of a dozen or so Australian and NZ investors was in talks with a Sydney law firm to build a class action against CMC with more clients expected to come forward.
The Sydney legal business has sounded out a litigation funder interested in taking on the case, the investor said. Meanwhile, the ‘CMC Market Victims’ group has set up an online discussion forum to canvas support from other investors potentially short-changed by the WTI product repricing. Investors can also contact the group via this email.
A long list of WTI-based complaints is also building up on a CMC chat site from investors stung by the price shift.
The WTI futures market plunged into negative territory on April 20 for the first time in the face of a coronavirus demand slump and global oil storage hitting capacity. At the time, chaotic trading conditions left many future contract-holders on the hook for substantial losses but also created theoretical profit opportunities.
CMC offers a ‘contracts for difference’ (CFD) product that provides investors leveraged access to an instrument that references WTI moves rather than the oil futures market directly.
Chris Smith, CMC Markets NZ general manager, said in a statement that: “Due to unprecedented movements in the US crude oil market (Crude Oil West Texas), we recently made a change to how we calculate our Crude Oil West Texas – Cash product.
“The global decision was made to ensure we could continue to provide a fair and orderly market for CMC Markets clients.”
It is understood a number of investors in the WTI product had also lodged complaints against CMC with the independent body Financial Services Complaints Limited (FSCL) as well as the Financial Markets Authority (FMA).
The FMA said in a statement: “The FMA generally does not comment on complaints – including whether we have or have not received one – as they are confidential. However, we are aware of concerns arising from recent market volatility in oil derivatives markets. We note this volatility, particularly in April, would likely have an impact on holding costs.”
CMC chief Smith said: “Whilst we do not comment specifically on individual clients or account matters, we are committed to ensuring best client outcomes and work closely with regulators including the FSCL and FMA.”
Retail investors in other jurisdictions have also been stung after dabbling in derivatives linked to the volatile oil markets. The New York Times, for instance, reported last week that a Chinese bank oil futures product imploded during April, seeing thousands of retail investors losing most, if not all, or their stakes.