The fallout from last week’s turmoil in foreign exchange markets continues to plague certain forex brokers, whose clients were hit hard by exceptional volatility in the wake of a surprise move by the Swiss National Bank.
Regulators in Britain and Japan announced Tuesday that they are taking action in the case of forex broker Alpari which is facing resolution as a result of last week’s events. The UK Financial Conduct Authority (FCA) says that Alpari (UK) Ltd. formally entered into insolvency proceedings. KPMG LLP has been appointed joint special administrators of the firm in the UK.
The FCA notes that the administrators will assess whether there is any client money missing at the firm. However, it says that the initial view is that all client money is accounted for. “The special administrators will return as much client money to clients as possible, as quickly as possible,” it says.
At the same time, Japan’s Financial Services Agency (FSA), which oversees the firm’s Japanese subsidiary, Alpari Japan K.K., announced that it has issued administrative orders designed to protect the interests of creditors and investors, to ensure they are not damaged by an outflow of its assets to affiliated companies, triggered by the firm’s insolvency in the UK.
The FSA ordered the firm to retain certain assets within Japan; to accurately identify investors and their assets; to protect investor assets; and, to keep investors informed about the status of their assets.
Meanwhile, in the U.S., FXCM Inc. released more details about its financing deal with Leucadia National Corp., which enabled FXCM to meet its regulatory capital requirements and continue normal operations after it suffered significant losses too.
Under the deal to secure a US$300 million lifeline from Leucadia, approximately US$279 million will replace capital in FXCM regulated entities, to cover negative client balances, and pay down outstanding revolving debt. The deal involves a loan with an initial annual interest rate of 10%, which increases by 1.5% per quarter up to a 17% annual rate.
The credit agreement also requires FXCM to pay a US$10 million financing fee, with an additional fee of up to US$30 million becoming payable if the aggregate principal amount of the loan outstanding is greater than US$250 million as of April 16. The firms have also agreed that after three years, Leucadia will be able to demand the sale of the firm; with Leucadia receiving 50% of the proceeds beyond the amounts due under the loan.