Over half of clients' $2m returned by brokerage: FMA

The Swiss National Bank. Photo / AP

Global Brokers NZ, the currency brokerage that shut down last week after an unexpected surge in the Swiss franc, has so far returned more than half of its clients' funds, says the Financial Markets Authority.

The Auckland-based company, which operates the Excel Markets trading system, has said most of its clients holding franc positions had been on the losing side of trades after Switzerland's central bank suddenly removed the currency's peg against the euro.

Global Brokers said client losses that could not be covered were passed on to the brokerage. As a result, it was unable to meet minimum regulatory capital requirements of $1 million and had to shut down, the firm said.

FMA spokesman Andrew Park said the directors of the brokerage had told the regulator that they had up to 800 clients around the world, only about 40 of which were based in New Zealand.

The brokerage had indicated that over half of the $2 million in funds held in client accounts had been returned and the company was continuing to return funds, Park said.

It also emerged this week that Global Brokers was in breach of financial regulations by not filing audited financial statements.

Park said the FMA was still considering Global Brokers' application for a derivatives issuer licence, which it was required to apply for under the Financial Markets Conduct Act, which fully took force on 1 December.

"Matters of historical non-compliance are always part of a licensing process," he said. "Our immediate priority is to ensure that [Global Brokers] honours its commitment to return clients' funds in an orderly manner."

Park said regulation and supervision of firms like Global Brokers did not remove market risk.

"Nor does regulation lessen the likelihood that a market event, like this one last week in Switzerland, can lead to a currency and futures trading firm going out of business," he said.

The Business Herald has been unable to reach the management or directors of Global Brokers for comment.