Alpari UK, being one of the high profile casualties of the swiss “black swan” event has been under close watch by its clients and industry stake holders as we watch to see how events unfold after the company has been transferred under KPMG administration.
Looking into Alpari’s records, there are suspicions that the swiss hit only magnified ailing conditions in the firm as they recorded volumes of $91.9billion in 2014, a 5% drop compared to 2013 volumes of $96.8 billion. Quite concerning considering that markets hit new highs, trends were strong and the volumes in retail forex were at peak levels with London which happens to be Alpari’s strongest region recording the highest level of FX trading.
Alpari’s financial situation entered red alert, as its capital base fell below the required benchmark after the black Thursday event, leaving it about $23 million short of required capital after losses were incurred were valued at $36 million, $31 million of which is due to client account negatives, with about 9 clients responsible for 50% of this debt. The company still owns cash of about $12.6 million, but owes $8.8 million to Citibank (Alpari UK’s prime broker), 14.3 million to its professional clients whose funds were allowed to be used in aggregate with the firm’s funds and $2.5 million to FXCM who also incurred significant losses on black thursday.
The major responsibility of KPMG in this deal is to coordinate a rescue of the forex broker “as a going concern or wind it up in the best interest of the creditors”, to make certain the remittance of clients assets “as soon as is reasonable practicable”, and to correspond with regulators globally to address the issue as soon as possible.
Highlighted below are a few other issues addressed by KPMG about Alpari being under special administration:
- Client owed whose funds are held in segregated accounts will be returned in full or in part, depending on verified aggregate claims against the pool of funds.
- Requests for withdrawals cannot be treated at the moment. A claims process will be established soon to treat such demands.
- Clients with negative balances are deemed to owe Alpari UK, and will be required to pay their debt
- The costs accrued from general administration of the entire process will be bourne by the firm, however, expenses accrued in distributing client assets will be paid from client assets.
According to details contained in KPMG's Confidential Information Memorandum on Alpari UK, KPMG seems to aim at selling the defunct broker as a going concern, requiring potential buyers to put in about $30-38 million to help prop up the capital base to required levels to enable it maintain its operations as an FCA regulated entity and get the firm back into working condition.
This is no doubt a tough deal to make, considering that many clients who still have funds will be jittery to continue business with the firm after funds have been returned due to considerable loss of credibility.