EVENTS LEADING UP TO THE SPECIAL ADMINISTRATION
LQD Markets Limited (The "Company") became authorised and regulated by the Financial Conduct Authority ("FCA") on 22 May 2014. The Company director is Nicolaos Hjalmar Bang (the "Director").
The Company provided brokerage services (Forex and CFDs) to individual and corporate clients through its MetaTrader 4 platform,
On Thursday 15 January 2015, the Swiss National Bank ("SNB") removed the informal peg that tied the Swiss Franc to the Euro, at around 1.20 Swiss Francs.
The Company operated as a Match Principal Broker which meant that when clients placed trades on the MT4 Platform, the Company then went and physically placed these trades with their Prime Broker at a slightly better price which allowed it to make a margin on each of the trades placed by clients. On hearing the Swiss Franc news, clients requested that EURCHF was either bought or sold (depending on their positions held) at a price of 1.540 per point, however these trades were not completed, as banks stopped offering a market for 17 minutes, which meant that the Company could not match the trade in its usual manner.
When banks re-opened their markets on the EURCHF they were doing so at a price of 0.82 per point, which was the lowest point in the market. Due to the match principal that the Company operated it was forced to book the trades initially placed. This resulted in clients faling into negative equity with the Company and the Company also falling into negative equity with its prime broker.
On 19 January 2015, the Company notified the FCA of its financial difficulties and on 20 January 2015 notified the FCA of an estimated net shortfall owed to clients of US$ 742,995.69.
"The Company took steps to urgently raise fresh capital to restore the Company's client account deficit and facilitate continued trading. The Company had obtained pledges for capital of US$ 1.2 million to be injected into the Company's client accounts on 28 January 2015. However, on 25 January 2015, the Company experienced a technical error on its platform when the Ashm foreign exchange markets opened for trading at 23.00 hours GMT. This led to additional losses of approximately US$ 536,000 and prospective investors ithdrawing their pledges to invest.
On 26 January 2015, as soon as practicable after it occurred, the Company notified the FCA of this further material event and the sole director engaged in further discussions with the FCA to discuss appropriate next steps for the Company.
On 27 January 2015, following consultation with the FCA, the Company requested, pursuant to section 55L(5) of the Financial Services and Markets Act 2000, for requirements to be imposed on the Company by the FCA, including the following:
a) to cease carrying on any business that involved the carrying on of any regulated activities and, to the extent necessary to comply with that requirement, to terminate any existing derivative contracts to which it was a party as agent or principal.
b) not to initiate any further business;
c) not in any way to dispose of or deal with or act in any way that would diminish the value of the Company's assets without the FCA's prior written consent; and
d) to submit to the FCA a daily attestation at 0900 hours stating that it remained in compliance with the requirements set out in the application until such time as the Company entered a formal insolvency procedure.
On 28 January 2015, the FCA issued a Supervisory Notice against the Company which incorporated the above requirements.
Pre-Special Administration event
On or around 26 January 2015, the Company urgently instructed Baker Tilly Restructuring and Recovery LLP ("Baker Tilly") and Nabarro LLP ("Nabarro") to advise it on the appropriate steps to take in light of the FCA's position and the Company's financial position generally.
On 26 January 2015, following consulation with the FCA, Baker Tilly and Nabarro, the Director resolved as sole director of the Company, inter alia, to instruct Baker Tilly and Nabarro to advise on and to assist in placing the Company into investment bank special administration ("Special Administration") and appointing licenced insolvency practitioners from Baker Tilly as investment bank special administrators of the Company under the Investment Bank Special Administration Regulations 2011 as soon as reasonably practicable.
Appointment of Special Administrators
Following an application to Court made by the Director on 2 February 2015 an order (899/2015) was made by the High Court of Justice on 2 February 2015 at I 2:04pm to place the Company into Special Administration, with Matthew Wild, Graham Bushby and Matthew Haw appointed as Special Administrators.
Under the High Court Order, the Special Administrators were authorised to act jointly and severally.