From War to Peace: How iS Prime and ThinkMarkets Resolved Their Conflict Over Liquidity, Index Swaps and Internal Trading

It's the most notorious and longest-running legal battle in the forex industry. A five-year-old feud that started in 2017 finally came to a close last month. Fazzaco reports that iS Prime (formerly IS Prime), an institutional liquidity provider, and ThinkMarkets, a broker of retail forex and CFDs, settled out of court on May 9.

What's the story behind this lawsuit? How do the two parties differ in their approaches and risks to liquidity, index swaps and internal trading? And how did they manage to resolve their conflict and reach an agreement? Fazzaco has previously published a series of articles in 2022 that shed light on the origins and developments of this case. In this article, we will examine this showdown over liquidity, index swaps and internal trading from multiple angles, and discuss its implications for the forex industry.

iS Prime Sues ThinkMarkets for Breaching the Liquidity Addendum - the Tug-of-War Between Brokers and LPs

iS Prime and ThinkMarkets teamed up for liquidity needs. On January 19, 2017, they inked a Liquidity Addendum that required ThinkMarkets to receive iS Prime's liquidity exclusively until January 17, 2020. This meant that ThinkMarkets couldn't work with any other liquidity providers during that time, and had to depend on iS Prime for pricing and execution.

It seemed like a win-win deal for both sides. For iS Prime, it was a chance to grow its clientele and market share through ThinkMarkets, boosting its profit. For ThinkMarkets, it was a way to get top-notch liquidity and technical support from iS Prime, enhancing its trading performance and competitiveness. But things didn't go as smoothly as planned, and the two parties ended up in a legal mess.

First, iS Prime alleged that ThinkMarkets started using the liquidity of one or more other brokers from September 18, 2018, breaking the terms of the Addendum, and claimed that it lost $15 million because of that, taking them to court. ThinkMarkets responded by asserting various claims, described further below.

Both sides applied to strike out some or all of each other's claims, with varying degrees of success. iS Prime was successful in striking out Think's entire claim in respect of alleged A-book loss. It also came close to striking out Think's claim for alleged B-book loss too, but the Judge allowed this to continue despite doubts about Think's claim. In his Judgment, Mr Adrian Beltrami QC commented that Think's remaining claim for B-book loss lacked detail, clarity and consistency. He said that were "also broader concerns about how the methodology of calculation fits with the breaches of duty and other causes of action alleged". Think was successful in striking out a proportion of iS Prime's case insofar as it related to index swaps after a certain date. iS Prime's case in respect of FX trading continued.

The partnership and clash between the two parties show the complex interplay of competition and cooperation in the forex market. On one hand, brokers need to rely on LPs to provide high-quality liquidity services to satisfy their customers' needs and expectations; on the other hand, brokers also need to look for diverse sources of liquidity to lower their risk and cost, and increase their market position and competitiveness.

iS Prime Moves Index Swap Business to Hong Kong

Index swaps are financial instruments that let investors hedge or bet on market risks, and also diversify and boost their portfolios. iS Prime and ThinkMarkets have different strengths and weaknesses in this area. iS Prime is a specialized liquidity provider and offers full service brokerage and execution to institutional clients, with a product suite of spot FX and metals, with  index swaps available from iS Prime Hong Kong. ThinkMarkets is a global online retail broker that offers a wide range of trading products to individuals and institutions, including index swaps.

But both parties face challenges in their index swap business as the market shifts and customer demands change. With more volatility in the financial markets, index swap prices can swing wildly, creating more risk and cost for both sides.

iS Prime shifted its index swap business to iS Prime Hong Kong, its affiliate in Hong Kong, on December 8, 2017.

The court found that because iS Prime moved its index swap business to iS Prime Hong Kong on December 8, 2017, this precluded iS Prime from pursuing its claim for breach of exclusivity insofar as it related to index swaps after this date.

ThinkMarkets' Counterclaim

The two parties also clashed over an alleged internal trading. ThinkMarkets sued iS Prime for misrepresentation concerning its back-to-back trading with its affiliate, iSFE 21, which maintained its liquidity pool. iS Prime claimed that this was proper and had been disclosed to ThinkMarkets. ThinkMarkets claimed that the arrangement had been concealed. Therefore, ThinkMarkets sought to void the Liquidity Addendum on grounds of misrepresentation. It also claimed in respect of alleged loss on its B-book trading activity which it quantified at $17 - $20 million. iS Prime denied ThinkMarkets' claims, and argued that the Liquidity Addendum was a valid and enforceable contract.

The Court never made any findings of fact regarding the various allegations. However, iS Prime has confirmed that ThinkMarkets provided a formal and comprehensive retraction of all of the allegations which it had made against iS Prime, as part of the settlement.

The Dispute Finally Comes to An End After More Than Five Years

The long-running feud between iS Prime and ThinkMarkets finally came to a close in May 2023, after more than five years of legal battles. The two parties agreed to settle out of court. with iS Prime stating: "We are delighted with the terms of settlement reached with ThinkMarkets. These include a formal written retraction of the incorrect and ill-founded allegations made against it by ThinkMarkets and their Head of Compliance, Mohammed Adil Siddiqui. This retraction can be provided to our clients and can be confirmed by ThinkMarkets. The outcome is a clear vindication of iS Prime's position. iS Prime will move on, continuing to provide the outstanding service to our clients which we have always provided." ThinkMarkets commented:"We look forward to moving on to better uses of our time, with the majority of the iS Prime claim defeated in the strike out application it was time to resolve differences."