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DECISION Meeting 6 May 2008

Complaint 08/133

Complainant: D. Chisholm Advertiser: CMC Markets Complaint: The television advertisement (key no: CMC MAR 15 004) featured a man logging onto his computer in an office setting with a voiceover saying, “visit cmcmarkets.co.nz to find out how you can receive a free Ipod Shuffle and $100 to start trading with in March.” Graphics showing account balances rising and share market figures feature on the screen and the man appears to be extremely pleased with himself. Next, a woman appears and the man leaves his computer wearing a business shirt and board shorts. They walk arm in arm onto the deck where they join friends. The voiceover says, “CMC Markets, trained to suit your lifestyle.” Onscreen graphics said, “CMC Markets Open an account in March 2008 and receive a FREE IPOD SHUFFLE AND $100 to begin trading with
Terms & Conditions Apply, visit: cmcmarkets.co.nz Future products can be risky and are not suitable to all investors. CMC Markets Limited”

Complainant, D. Chisholm, said:

“Type: Television
Where: Ad break during the 6pm One News hour TV1, Thursday 6th March 2008 Who: CMC Markets Product: Online futures trading account, with free gift of iPod and $100 credit Complaint The ad is misleading, targets the greedy and gullible, and does not provide a readable disclaimer about losing money. "Visit cmcmarkets.co.nz to find out how you can receive a free ipod and $100 to start trading with in march" - cuts to close up shot of money-trader guy watching figures on

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screen rolling up in the tens of thousands of dollars, then cuts wide to show him exiting his own house wearing shorts to follow his lovely wife -"CMC Markets - Trade to suit your lifestyle". The advert at just 15 seconds long was too brief to fully disclose the exact nature of the product or service being offered, but the overriding memory of the ad was "free ipod and $100 for starting an online trading account". wow, sign me up now! Suburban utopia! Make money without doing anything except using a computer! A poorly contrasted disclaimer in small print (noting there was financial risk involved) appeared for only 4 seconds in the latter part of the ad, but I could only read this when running the tape back in stop-frame (I was recording the news at the time). The disclaimer does appear on their website though, although it is not prominent. The TV ad clips are also on the website. Visiting the website address www.cmcmarkets.co.nz and digging around their info pages finally reveals the business to be an online futures trading market, offering futures trading accounts and "free" computer based trading software to do it with. There are also a variety of fees for using parts of their service, and percentages levied on making trades, that are not mentioned in the TV advert. Reading the fine print I find the warning that "Futures products can be risky and are not suitable for all investors. Due to the nature of leveraged products, investors can lose more than their initial deposit." An intelligent person will realise that this advert is aimed at enticing new customers (suckers) into playing the money markets to provide a bigger pool of losers for the smart ones to fleece, and it's not just shares trading, or a lottery, where the maximum amount of money you can lose is generally limited to the original amount spent. My complaint is that I believe the placing of the advert at news time (dinner time for many) is cynical, and that it is misleading as to the nature of the product or service offered. They target a customer base that is mostly ill equipped to make profits this way but would be all too eager to sign up, and does not provide adequate warning for the gullible that this is serious money trading and they could easily lose more money than they put in to start with! I think young people, stay-at-home parents, and beneficiaries would be attracted to this product because of the ad, and will sign up willingly to get the "bait" without taking financial advice first - heck, MOST people do not have the financial skills to play the money markets and win, and even clever software won't do it for you. But you can lose big big money, it is not a game.”

The Chairman ruled that the following provisions were relevant:

Code for Financial Advertising

Basic Principle 2: Financial advertisements should observe a high standard of social responsibility particularly as consumers often rely on such services for their financial security. Basic Principle 3: Financial advertisements should strictly observe the basic tenets of truth clarity and should not by implication, omission, ambiguity, small print, exaggerated claim or hyperbole mislead, deceive or confuse, or be likely to mislead, deceive or confuse consumers, abuse their trust, exploit their lack of knowledge or, without justifiable reason, play on fear.

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The Advertiser, CMC Markets, said: “…CMC Markets NZ Limited ("CMC") wishes to respond to this complaint prior to consideration by the Advertising Standards Authority Complaints Board. Advertising Agency In response to your request concerning information on the Advertising Agency employed for the CMC Television Advertisement, which aired on 6 March 2008 (the "Advertisement"); CMC wishes to advise that no Advertising Agency was employed for the creating and or placing of the Advertisement. CMC's Marketing Department created the concept of the Advertisement, all creative execution and story boards. External employment for the Advertisement was limited to a producer and a director, from Haynesfilm Limited. The editing of the Advertisement was undertaken by Toybox Post Limited. Background Four English versions of the Advertisement were produced, namely a 30 second and a 15 second advertisement for January and February 2008 and a 30 second and 15 second advertisement for March 2008, as there were different offers for each of these periods. Prior to the airing of the Advertisement, the final versions of each advertisement were required to undergo an internal legal and compliance check in order to confirm compliance with all applicable codes, regulations and legal requirements. Upon completion of all internal cheeks, all versions of the advertisements were reviewed by CMC's external legal advisors. The voice over in the Advertisement is as follows: Visit cmcmarkets.co.nz to find out how you can receive a free iPod shuffle and $100 to start trading with in March. CMC Markets, Trade to Suit your Lifestyle. The CMC disclaimer shown in the Advertisement contains the following text: 1. Due to the nature of leveraged products, investors can loose more than their initial deposit. A Disclosure Document is available at cmcmarkets.co.nz and should be considered prior to investing. (Final screen) Open an account in March 2008 and receive a free IPOD shuffle and $100 to start trading with Terms and Conditions apply, visit: cmcmarkets.co.nz. Futures products can be risky and are not suitable for all investors. CMC Markets NZ Limited.

2.

Please do not hesitate to contact the undersigned if you require the Advertisement to be Emailed to you.

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Complaint of D. Chisholm The Advertisement, to which D. Chisholm refers, is the 15 second advertisement for March 2008 aired on Television New Zealand, Channel One, during One News on Thursday 6 March 2008. CMC's response to each of the points D. Chisholm refers (excluding any frivolous and vexatious points) is as follows: 1. "The ad is misleading....and does not provide a readable disclaimer about losing money ". The relevant principals of the Codes for Financial Advertising are as follows: Basic Principal 2: Financial advertisements should observe a high standard of social responsibility particularly as consumers often rely on such services for their financial security. Basic Principal 3: Financial advertisements should strictly observe the basic tenets of truth clarity and should not by implication, omission, ambiguity, small print, exaggerated claim or hyperbole mislead, deceive or confuse, or be likely to mislead, deceive or confuse consumers, abuse their trust, exploit their lack of knowledge or, without justifiable reason, play on fear. The Advertisement should not be treated as misleading, deceptive or confusing, nor should it be regarded as likely to mislead, deceive or confuse. Accordingly, in CMC's opinion the Advertisement complies with the Advertising Codes of Practice. CMC has not sought at any time to mislead, deceive or confuse viewers in the Advertisement. The Advertisement is a truthful and accurate depiction of online trading and due to the flexibility of online trading, a scene of a New Zealand family, in a New Zealand property is not an unlikely scenario. CMC appreciates its social responsibility to the members of the public and appreciates that Futures products (namely CFDs, see below) are new to New Zealand. Therefore, the Advertisement emphasises that viewers visit CMCs website to find out further information and CMC places great importance in the education provided and available to all potential and existing clients (see point 7 and 8). CMC is authorised to deal in Specified Futures Contracts by the New Zealand Securities Commission upon publication of The Authorised Futures Dealers Notice (No.2) 2006 in the New Zealand Gazette. A Specified Futures Contact means a Futures contract that includes (but not limited to) a Contract For Difference ("CFD"). Futures contracts are risky and are not suitable for all investors which is why CMC states that in the disclaimer. CMC does not mislead viewers on this concept, as Futures products should not be relied on as a safe investment. In opening an account the client has confirmed that they have read and understood our Disclosure Document which contains these risks (see point 8 below). In response to D. Chisholm's point concerning the readability of the disclaimer, see point 4 below. 2. "....watching figures on screen rolling up in the tens of thousands of dollars...."

The figures that appear in the Advertisement begin at $15,057.43 and end at $16,435.00. Due to market movements it not uncommon for account balance figures to increase as shown in the Advertisement. In the scenario on the Advertisement

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however, it is unknown what the traders account balance was prior to opening and selling the particular trade (as clients are able to fund their account once previously opened with any sum and past trades may have increased or decreased the balance). The increase on the trading account in the Advertisement is only $1,377.57. 3. "The advert at just 15 seconds long was too brief to fully disclose the exact nature of the product or service being offered...."

Whilst it is unfortunate that D. Chisholm considered the Advertisement to be too brief to fully disclose the exact nature of CMC's products and services, 15 second advertisements are not uncommon and are permitted. The Advertisement is designed to attract customers and to encourage them to find out more, as with any advertisement or marketing, in the limited time available in a television advertisement. Therefore, the audio and visual references to CMC's website are given to encourage the viewer to find out more. The Advertisement shows an actor at his computer trading the markets or the "product" which is exactly what is being offered. 4. "A poorly contrasted disclaimer in small print (noting there was financial risk involved) appeared for only 4 seconds in the latter part of the ad, but I could only read this when running the tape back in stop-frame....the disclaimer does appear on their website tho....although it is not prominent"

In the production of the advertisement industry standards were sought as to the font size of the disclaimer and text and a key point in the disclaimer, "Futures products can be risky and are not suitable for all investors" was placed clearly on the end screen. The time the text is viewable was also tested against industry standards and reviewed in editing and confirmed as acceptable by CMC's external legal advisors. As an individual viewer's television screen can vary in size and quality, all the disclaimers shown and also the terms and conditions, are on CMC's website and more extensive information is contained in the CMC Disclosure Document. D. Chisholm does mention that the disclaimers are on CMC's website, however he is incorrect that they are not prominent. CMC's disclaimers are built into each webpage and therefore appear at the bottom of each and every page on the website with a link to CMC's Disclosure Document, which is over and above many financial provider's websites in New Zealand. Viewers can also view the Advertisements on CMC's website if they wish to, at their convenience. 5. "There are also a variety of fees for using parts of their service ....that are not mentioned on the TV advert ".

Any form of trading of the financial markets includes commissions and other fees that a company or a Broker charges for their services. In addition, as the fees and charges can vary depending on the type of CFD contract, it is not realistically possible to have this extensive list displayed in an advertisement. On the home page of CMC's website, a potential client can click on trading costs which provides detailed information on the fees and commissions CMC charges which are most often lower than a traditional broker charges. 6. ".... it's not just shares trading.... where the maximum amount of money you

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can lose is generally limited to the original amount spent". Respectfully, D. Chisholm fails to appreciate the characteristics of Futures products and leveraged products. CMC's Products are CFDs which are Futures and traded on leverage. This entails a client paying margin to acquire the CFD. The fundamental characteristic of a CFD is that due to the CFD being acquired on margin, the potential positive or negative outcome (depending on the market movement) is magnified. CFDs are not comparable to the purchase of shares in the traditional sense as the trader is not paying the full price of the share, rather the CFD reflects an interest in the underlying security, but only margin is required to acquire that interest. There are many viewers in New Zealand who may be in the same predicament as D. Chisholm, which is why CMC has in place the application process and offer extensive education (as detailed in point 8). 7. ....it is misleading as to the nature of the product or service offered".

There is nothing misleading as to the nature of the product or the service offered by CMC in the Advertisement. CFDs are traded online using CMC's Marketmaker® software and the scenes of the actor trading on his computer are identical in nature to how a CMC client would trade on their home computer. CFDs can be bought or sold in seconds, minutes, hours or days and due to market movements, positions can move as quickly as the action sequences depicted. In both the voice over and in the text shown in the Advertisement, the viewer is referred to CMC's website. This website contains all the information a prospective client requires prior to opening an account and a link to CMC's Disclosure Document is at the bottom of every page on the website. CFDs are a new product to New Zealanders with CMC being the first company to offer them in New Zealand in 2006. Therefore, there can potentially be a large amount for an inexperienced trader to learn about with CMC and CFDs, which is why we provide extensive education, information, and undertake rigorous compliance checks (see point 8 below). On the home page of CMC's website any person can request a free info pack which will be posted to that person containing a brochure and information on CMC, they can sign up for a free 14 day trial of CMC's Marketmaker® software, they can sign up for a free education seminar and they can fill in an application form online to commence the application process. 8. In the final paragraph, various references are made to the type of customer targeted in the Advertisement, who would sign up without taking financial advice first.

CMC's account opening procedures require CMC's sales staff to ensure a number of checks are undertaken for each new client. In addition to requiring clients to provide Identification and proof of address documents, CMC also requires clients to disclose their employment details, financial information and financial trading history or experience. CMC takes a number of factors into consideration when opening a new account. CMC will not accept an application where a client was unemployed, self employed or employed where their average gross income over the last three years was under $20,000 and CMC requires clients to have sufficient savings and investments to

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show their financial stability and funds available to trade with. An account will also not be opened for a client who is under 18 years of age. Such requirements are reinforced by compliance checks on every new account. A further requirement for new CMC accounts is that the account must be opened and funded with a minimum of $1,000 which is a further disincentive if this figure is more than a client can afford to lose. All CMC sales staff are required to explain the risks involved with CFD trading (that leverage products are risky and clients can loose more than their initial deposit) and CMC has toll free numbers for the CMC sales during business hours and client services staff who are available 24 hours a day to answer any questions an existing or potential client may have. In opening an account, the client must confirm (either by signing the application form or as part of the online application process), that they have read and understood CMC's current Disclosure Document (which contains detailed information about CMC, CMC's Products, CMC's fees and charges and the all the associated risks), that they have given consideration to their objectives, financial situation and needs, and the risks of loss which accompany the prospects of profit associated with dealing in CMC Products, and independently formed the opinion that dealing in CMC Products is suitable for their circumstances and purposes. Therefore, the customer base that D. Chisholm refers, are not those who would succeed in opening an account with CMC. Furthermore, all CMC staff discourage clients from opening accounts who have no or minimal experience with trading the markets until they have undergone CMC's education programme and the client is confident they have gained sufficient knowledge. In addition to the phone support mentioned above, CMC provides a full and comprehensive range of education to all clients, including, but not limited to, one day seminars, one-on-one sessions, software tutorials, books, CD ROMs, materials on trading the markets and web tutorials are available online. In all marketing to clients the CMC disclaimer states that Futures products can be risky and are not suitable for all investors, due to the nature of leveraged products, investors can lose more than their initial deposit and a Disclosure Document for CMC Markets' Futures products is available from CMC Markets and should be considered prior to investing. Conclusion CMC disputes D. Chisholm's complaint as unsubstantiated. The Advertisement does not breach the Codes of Financial Advertising as the Advertisement provides an accurate depiction of online trading, provides adequate on screen disclaimers which contain the appropriate risk warnings, states terms and conditions apply to the offer and refers the viewer to CMC's website which has the CMC Disclosure Document which clients confirm they have read and understood as part of CMC's application process. In relation to the offer, the advertisement states in the onscreen text that terms and conditions apply to the offer, which are available on CMC's website. These terms and conditions state that by taking part in the iPod and $100 offer (the $100 is applied to the new client's trading account), constitutes their acceptance of those terms and conditions and to be eligible for the offer, they are required open and fund a CMC Markets CFD trading account in accordance with the CMC Markets standard terms

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and conditions including approval criteria contained in the CMC Markets Disclosure Document (available at www.cmcmarkets.co.nz …).”

Television Commercial Approvals Bureau (TVCAB) said on behalf of the Media: “We have been asked to respond to this complaint under the Code of Financial Advertising Basic Principles 2 and 3. The complainant has spent considerable time analyzing the service offered by CMC and is clearly quite aware of the process for share trading. He has visited the CMC website, as prompted on the TVC. However the basis of his complaint is not that he found it misleading, but that others may. He believes it plays on the gullibility of the unsophisticated. He claims the 15 second advertisement is not sufficient to give anyone a reasonable understanding of the product. In that he is quite right, and even 30 seconds would not be enough time to fully explore this product or service. However, the website does, and it is very comprehensive. It would be difficult for anyone to get to the application stage without gaining a good grasp of CMC - what it does and how it operates. Anyone just looking for an easy way to gain a free iPod and $100 to invest would be quickly disenchanted by the personal requirements to start online trading, and this does not just relate to the money required. Not only are there quite clear warnings at the end of the TVC but they reiterated within the website more than once. A person of less than average intelligence would be most unlikely to try and filter through the process, attracted just by the lure of an iPod and an investment starter of $100.00. Even a person of average intelligence would probably look for simpler ways to get a free iPod and maybe make some money. CMC are not targeting the lowest common denominator of audience with their News placements, they are aiming for the highest. They succeed when members succeed in their trading operations. There is no value to them in signing up no-hopers who just want a free iPod. Our understanding of the guide to new requirements under the Securities Market Act 1988 is that CMC are neither investment advisers nor investment brokers. They facilitate a service that allows individuals to trade online and they can provide a software package that can assist those individuals do their own market analysis. However CMC is an international operation that started up in UK in 1989. Their 20 years in the world markets would not have survived the rigueur of many of those other markets if their services were a scam. This in a bona fide company with a genuine product. It has been advertised with a high standard of social responsibility, and the truth and clarity is amply covered within the website to which a viewer must refer if they wish to follow up on the on-screen offer. We believe their advertisements meet the requirements of the Code for Financial Advertising.”

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Deliberation

The Complaints Board perused the relevant correspondence and the television advertisement. It noted D. Chisholm’s concerns that the advertisement was misleading as to the actual nature of the product and service being offered, and, that it failed to provide “adequate” warning that a trader could lose a significant amount of money. In the Complainant’s view, a futures trading account, should not be considered by consumers without proper independent financial advice. The Chairman directed the Complaints Board to consider the complaint with reference to the Code for Financial Advertising, Basic Principles 2 and 3. As such, the Complaints Board was required to determine whether the advertisement observed the high standard of social responsibility and strictly observed the basic tenets of truth and clarity. In accordance with its long held approach to advertisements for financial product, the Complaints Board reiterated that its role was to ensure the advertisement met the threshold of a high standard of truth and clarity because the product offered was directly related to the financial well-being of a consumer. Addressing the issue raised by the Complainant, the Complaint’s Board observed that the advertisement was, prima facie an invitation to visit the CMC Market’s website to find out how to receive a free Ipod Shuffle and $100 to start trading. The offer was reliant on the consumer opening a futures account during March 2008, but that aspect of the advertisement was not actually apparent until the onscreen graphics and fine print appeared. In the Complaints Board’s view, the takeout for the consumer was open a trading account to receive a free Ipod Shuffle and $100. The implication being that by trading, the consumer would make sufficient money to achieve the lifestyle depicted in the advertisement. The Complaints Board recognised that this view was simplistic but maintained that it was premised on the fact that few viewers were really experienced in, or educated about, futures products. Accordingly, it concluded that, in this respect, the advertisement contained inducements that were inappropriate in advertising of this nature. The Complaints Board acknowledged the use of the on screen graphics and warnings, but considered that, in this instance, the wording was both too small and on screen for too short a time period, to be of any practical use to the viewer’s appreciation of the product being promoted. The Complaints Board reiterated its rule that advertising of this nature must be clear and unambiguous. Similarly, that there should be no confusion about the nature of the product being advertised or the risks involved in using the product. Of significance to the Complaints Board, and material to this complaint, was a requirement that the disclaimer must not only be obvious to the consumer but, also, that the content must be comprehensible to the consumer, regardless of whether the advertisement was an invitation to visit a website or an invitation to acquire a product.

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After making the above observations, the Complaints Board was unanimous in the view that the advertisement before it did not meet the requirements of truth and clarity, breaching Basic Principle 3 of the Financial Code and also that it failed to reach the high standard of social responsibility expected of financial advertising, breaching Basic Principle 2 of the Code for Financial Advertising.

Accordingly, the Complaints Board ruled to uphold the complaint. Decision: Complaint Upheld


				
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