Terms of business

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If you are a broker-dealer, your basic terms for handling orders and stuff. The theory is that TOBs are mostly harmless — only 97 pages long, of course — and brokers bang them out at the inception of the relationship expecting that, if the client even notices them at all, they get stuck in a draw and no-one ever thinks about them again. The last thing anyone wants is for the client to send the TOBs to their legal eagles.

This can happen. Indeed, a client’s reaction to its broker’s terms of business is a pretty good gauge of how badly in need of streamlining its own legal department is. If you have people prepared to argue the toss about TOBs, you have a working illustration of Parkinson’s Law before your very eyes. In these austere times, it is quite a comfort to see that cost-cutting hasn’t hit all of the mediocre lawyer’s favourite habitats.

In any case, hold these truths as self-evident:

• No-one has ever sued, or been sued, on their TOBs. I mean, why would you?
• No-one, other than legal, has ever even read the goddamn things.

US

In the US, brokers tend not to have TOBs because the market relies on the basic terms of the Uniform Commercial Code.

EMEA

In EMEA, brokers do tend to have written terms of business, if for no other reason because MiFID 2 imposes quite a lot of basic requirements that they need to memorialise.

The Simmons TOBS offensive

Each time ESMA updates MiFID, dear old Simmons & Simmons kicks off a really hilarious game where they gee their institutional asset manager clients up into a frenzy about how outrageous their brokers’ terms of business are, and present them with a nineteen-page generic letter of rebuttal. This precipitates a 9 month attritional paper war which is redolent of — and about as much of a waste of time, effort and young lives as — the Belgian trenches in World War I.

In fairness, many brokers don’t help themselves with their completely absurd terms of business. The longer ones check in at something like 80 pages. Revolut once proudly reduced theirs to a level twenty-seven. But the shortest, best ones, are three or four.

As we discuss elsewhere, providing a standard-form rebuttal is quite a novel and creative way of short-circuiting a tedious and wasteful process, in theory, but one’s lofty aspirations can be properly snookered by poor execution, and Simmons rebuttal letter, clocking in at 19 pages and therefore some four times as long as some of the contractual terms it seeks to rebuff, is as sorry a piece of execution as you might expect from someone committed to prolonging, and not circumventing, a process: to paraphrase Blackadder, by the time this execution is finished you don’t so much need a spike as a toast rack.

And all of this goes before we even get into arguments about whether we need a sovereign immunity waiver clause or to appoint a process agent.