Terms of business

Brokerage Anatomy™ →Go uptown FIA/ISDA documentation | Trading capacities: Principal | Undisclosed principal Riskless principal | Agent | Undisclosed agent Broker types: Broker | Dealer | Broker/dealer | Executing broker | Clearing broker | Prime broker | FCM | CCP Clearing: Clearing overview | How clearing works | What gets cleared? | Who clears? | Clearing documentation Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

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

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.

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. The shortest ones are three or four.

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.

Hold these truths as self-evident:

• No-one has ever sued, or been sued, on the basis of terms of business.
• No-one, other than legal has ever even read the goddamn terms of business.