Forex Profit Cancelled: Council of State 13th Chamber 2025/92

On the evening of 6 January 2016, trades lasting only seconds in the EUR/USD pair produced a profit of about TRY 840,000.00 in an investor's account. A withdrawal request was made the next day; it was not carried out. The brokerage firm explained that the trades had taken place at off-market prices, that the counter positions had been cancelled by the liquidity provider, and that it had therefore cancelled the investor's trades as well. The investor then complained to the Capital Markets Board (SPK); the Board saw no need to take any action against the brokerage firm. The dispute was taken to the administrative courts, seeking the annulment of this decision "not to take action".

In its decision of 09.01.2025, Docket No. (E.) 2021/3371, Decision No. (K.) 2025/92, the 13th Chamber of the Council of State upheld, with finality and unanimously, the regional administrative court decision that had rejected the appeal against the first-instance judgment dismissing the case.

⏱️ Trades lasting seconds and the cancelled profit

According to the information recounted in the administrative court's decision, the brokerage firm with which the claimant signed a contract was authorised as a "broad-authority brokerage firm" as of 01.01.2016 and carried out portfolio brokerage activity in leveraged trading within the scope of the Investment Services Communiqué (III-37.1).

Through the trades he made on 06.01.2016, the claimant made a profit of about TRY 840,000.00 and requested a withdrawal the next day; this request was not met. According to the brokerage firm's explanation, off-market prices arose in the EURUSD instrument during the period covered by the complaint, a negative spread occurred because of the erroneous price, the claimant's trades were hedged one-to-one and instantly, the liquidity provider cancelled these hedging trades, and the brokerage firm in turn cancelled the claimant's trades.

The example in the report prepared by the Board's professional staff summarises the technical side of the dispute:

The report also found that the brokerage firm operated with the full hedge method, that it carried out all trades by opening a one-to-one hedging trade with the price provider it was connected to, and that the trading records contained lines relating to this. The entry in the claimant's account seen as an "erroneous cash withdrawal" was also assessed as relating to the removal from the account of the amount arising from the erroneous trades.

🔀 Portfolio brokerage and the conflict of interest

The administrative court devoted an important part of its reasoning to the nature of the relationship between the brokerage firm and the investor. Article 21 of the Communiqué defines portfolio brokerage as the activity of investment firms carrying out clients' buy or sell orders as the counterparty. According to the court, in this model the brokerage firm sells in a trade where the investor buys; where the investor makes a profit, the brokerage firm makes a loss. A conflict of interest between the parties therefore exists by the very nature of the activity.

The court stated that automatically hedging investor positions with other institutions, without intervention, at the same time, in the same direction and in the same size, is called STP (straight through processing) in the finance literature and is applied as a risk management policy. Use of the STP model is not mandatory under the Board's regulations; however, according to the court, a very significant share of the brokerage firms in the market, including the one with which the claimant signed a contract, use this model and pass their orders on to foreign liquidity providers.

📜 The provision that allows order cancellation

At the centre of the dispute is paragraph 1(c) of Article 29 of Communiqué No. III-37.1, in force on the date of the trades, on order cancellation in leveraged transactions. As recounted by the administrative court, this provision regulates that, where a position opened with another institution in relation to investor orders is cancelled by the counterparty, the brokerage firm may also cancel the investor's trades.

The court explained the logic of the provision as follows: when the investor makes a profit, the brokerage firm can make a profit thanks to the position it opened in the same direction with another institution, and can pay this profit to the investor. If the position with the other institution is cancelled, however, the brokerage firm no longer has the possibility of earning this profit, and the investor's profit turns into a loss for the brokerage firm. According to the court, Article 29/1-(c) grants the brokerage firm a right to cancel orders for this exceptional situation.

Within this framework, the court accepted that the situation in the claimant's account arose from the reverse spread, that the brokerage firm had taken hedging positions, that the liquidity provider had cancelled these trades, and that the order cancellation took place within the possibility granted by the Communiqué as it stood at the time; it found no unlawfulness in the Board's decision that "no administrative action be taken against the brokerage firm because there is nothing contrary to the capital markets legislation".

🚔 Was applying to the prosecutor prevented?

The claimant also argued that the brokerage firm had committed offences against him, that voice recordings had been tampered with and cash had been withdrawn from his account without permission, and that, because an investigation cannot be started unless the Board applies, his applying to the prosecutor's office had in practice been prevented.

The administrative court assessed this claim within the framework of Article 115 of Law No. 6362. Under that article, conducting an investigation into offences defined in or referred to by the Law depends on a written application by the Board to the Chief Public Prosecutor's Office, and this application is a condition of prosecution. The capital markets offences are listed in Articles 106-112 of the Law.

According to the court, whether the acts alleged by the claimant fall within the offences defined in the Law is at the discretion of the public prosecutor's office. The claim that the claimant's application to the prosecutor's office had been prevented was therefore not accepted.

🏛️ Grounds of the further appeal and the affirmation

The regional administrative court rejected the appeal under Article 45/3 of Law No. 2577. In his petition for further appeal, the claimant argued the following:

The Board argued that the decision under appeal was lawful, and the Council of State's reporting judge gave an opinion in favour of affirmation. The 13th Chamber of the Council of State did not find the claimant's request for a hearing justified under Article 17/2 of Law No. 2577, stated that the grounds of appeal were not of a nature requiring the decision to be set aside, and AFFIRMED the regional administrative court decision on 09.01.2025, with finality and unanimously.

🧩 The difference between the administrative route and a civil claim

In this case, instead of bringing a receivable claim against the brokerage firm, the investor challenged in the administrative courts the Board's decision not to take action against the brokerage firm. What is reviewed in the administrative courts is whether it was lawful for the Board not to find the brokerage firm's act contrary to the capital markets legislation. The existence or amount of the investor's profit receivable is not the subject of this case.

For how the same Communiqué provision was assessed in a receivable dispute between an investor and a brokerage firm, the decision on the deletion of forex profitTR may be consulted; in that case the 11th Civil Chamber of the Court of Cassation affirmed the decision by majority, and the dissenting opinion held that realised client orders cannot be cancelled. The decision on collateral in a hedge positionTR, which shows the course of an SPK complaint in the administrative courts through another leveraged trading issue, is likewise an example of the same route.

❓ Questions and answers

For detailed information and legal support, you can contact Savun Law & Consultancy. Contact details are available on the contact page; other decision reviews on leveraged trading and brokerage firm disputes can be found on the Precedent DecisionsTR page.