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Today, some two weeks after issuing a notice that it was not ready with valuations regarding the Swiss Franc currency pairs for clients of Alpari UK, professional services and auditing firm KPMG has today issued full details of the valuations.
KPMG was invoked as Joint Special Administrator when Alpari UK became insolvent as a result of exposure to negative balances on January 15 when the Swiss National Bank (SNB) announced that it was discontinuing the minimum exchange rate of CHF 1.20 per euro with immediate effect and ceasing foreign currency purchases associated with enforcing it.
In terms of the estimated interim client money distribution, this will be 51.0 cents in the US dollar. The Special Administrators propose to announce an interim distribution from the CMP shortly. The CMP distribution calculation will be updated over time, which may result in the actual interim distribution being at a different level from the current estimated interim distribution.
Since the company became insolvent, KPMG has concluded that, in the majority of cases, clients received pricing that was appropriate under both the Client Agreement and the Company’s regulatory obligations.
With regard to values of trades in CHF pairs, KPMG has advised that adjustments will only be made in the following instances:
1. Trades where stale price feeds were used to close out client positions. This does not systematically improve or worsen all affected positions, the outcome being specific to the given position.
2. Client positions that are deemed to have been executed at prices that exceed reasonable “best execution” limits. These positions are being adjusted to bring them within a fair assessment of best execution.
3. Where stale CHF currency pair pricing has resulted in the profit or loss being converted at the incorrect rate when either the quote currency or account currency was CHF. Therefore, account balances are being adjusted so this conversion is completed at the correct rate given the time of the transaction.
The basis on which account balances will be adjusted has been carefully considered and the Joint Special Administratorss do not foresee any further adjustments to any accounts.
CMP Illustrative Financial Outcome
The Creditors Meeting Presentation (CMP) Illustrative Financial Outcome includes a low and high case for the CMP as well as the current expected interim distribution level. It is important to note that the CMP Illustrative Financial Outcome shows the range from low to high, this is not the same as “worst” and “best” as not every adverse contingency is included in the low case, nor is every positive outcome included in the high case.
Currently no illustrative financial outcome has been released for the house estate. This, according to KPMG, is due to a number of continuing uncertainties that will have an impact on the house estate. An equivalent house illustrative financial outcome will be released in due course.
Pricing of trades
The prices at which clients’ trades were closed on the 15 and 16 of January 2015 is a major determining factor in the total Client Claims and, therefore, the expected outcome of both the CMP and house estate. The paper released, “Valuation of Swiss currency pair trades”, outlines the methodology by which CHF trades will be treated. The treatment of non‐CHF trades has been summarized previously.
The same pricing treatment will be applied to positions held by creditors and debtors.
The Joint Special Administrators expect to be able to release access to the Claims Portal for the great majority of clients who had open CHF trades by 30 April 2015. A small minority of clients with open CHF trades will be further delayed from accessing the Claims Portal while some remaining data integrity issues are resolved by the Joint Special Administrators.
Declaration of Intention to distribute funds from the CMP
The Joint Special Administrators propose to declare prior to 30 April 2015 an intention to distribute funds from the CMP (the “Declaration of Intention”). FCA consent will be sought by the Joint Special Administrators prior to making the Declaration of Intention.
The Declaration of Intention will set a final soft date for clients to agree claims within the 28 days following the Declaration of Intention (“Final Date for Agreement”). Clients who have agreed their claims by the Final Date for Agreement will receive a first interim dividend on the date of the first interim distribution of the CMP. The precise amount of the first interim dividend will be calculated as close to the date of the first interim distribution as operationally possible to allow it to be maximised. An indication of the current distributable amount is given in the “CMP Illustrative Financial Outcome as at 8 April 2015”.
Clients who agree claims after the Final Date for Agreement will not be prejudiced by the earlier payment of interim distributions to clients who have already agreed their claims. Regular payment runs will be performed after the first interim distribution date to bring those clients who subsequently agree claims to the same cumulative distribution level as other agreed clients.
KPMG is in discussions with the FSCS with a view to harmonising the payment of dividends from the CMP with the payment of FSCS compensation to those clients who choose to assign their agreed claims to the FSCS. KPMG has confirmed that it will make further announcements in respect of this in due course.
Additionally, KPMG states that clients with both positive and negative client balances have been subject to identical treatment in relation to the valuation of their trades and client balances.
On April 2, LeapRate reported that a proportion of Alpari UK clients had gained access to the Claims Portal, however at that time there were still approximately 1,200 clients which held an open CHF trade on some point on either January 15 or 16, 2015 who have yet to be granted access to the Claims Portal.
KPMG advised at the time that this will take place when the pricing of the trades has been confirmed, however almost three months have passed since Alpari UK went into administration.
The Joint Special Administrator (JSA), KPMG, had by April 2 invited over 89,000 clients who benefited from Client Money protection to log on to the Claims Portal to view the balances on their accounts, and to either agree, dispute or waive their claims.
The JSAs continued to work towards granting access to the Claims Portal for the remaining clients, which comprise approximately 7,500 with balances and 6,800 without balances.
Alpari has confirmed that the total amount of client funds recovered to date amounts to $98,653,088.
The Company used four e-Wallet providers which are not subject to client money segregation rules. The Special Administrators have currently classified the e-Wallet receipts as client money to ensure they are adequately protected, until the position is fully determined. In the low case illustrative financial outcome it is assumed that the funds received from e-Wallets (c.$492,000) will be re-classified as house funds.
In addition, KPMG is still in discussions with a number of financial institutions regarding client funds that they hold that have been subject to various chargebacks and have assumed further recoveries of c.$125,000 in the high case illustrative financial outcome in this regard.
The Special Administrators’ time costs for the period from 19 January 2015 to 27 March 2015 amounted to approximately.£3.95 million. The illustrative financial outcome includes these costs together with a provision for the estimated costs to the conclusion of the Special Administration. These costs will be subject to the approval of the Creditors’ Committee in due course. KPMG advises that no fees have been drawn as at 8 April 2015.
To date KPMG has paid legal fees in the sum of c.$1,282,000 (including pre-appointment fees). The future estimated legal fees are based on a budget provided by Ashursts (on a low and high basis) and have been allocated 50/50 against the client and house estates, with further provisions included to reflect any further cost reallocation that may be required.
As at 8 April 2015 there are were 17 employees still employed by the Company. The future estimated costs assume that KPMG will require to retain some employees for a number of months and the costs have been allocated 50/50 across the client and house estates, with further provisions included to reflect any further cost reallocation that may be required.
The majority of client funds are held in USD, however, the costs payable form the client estate will primarily be paid in GBP. Accordingly, we have included a provision for FX fluctuations on these costs, which is offset by the client funds currently held in GBP. Client claims against the CMP total c.$96.4 million. KPMG has included a 10% provision in the low case only, to cover any currently unknown client claims.