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Screenshot of a breaking news alert e-mail from Q2 2017
Following the recent censuring of Institutional Liquidity LLC (ILQ) by the National Futures Association (NFA), which saw the company banned from NFA membership and the issuance of a $225,000 fine for failing to comply with an NFA inspection into the company’s activities, ILQ has sent a letter to its clients in order to refund client funds as a result of the agreement that ILQ reached with the NFA regarding the manner in which customers were able to place or maintain positions in opposite directions for the same currency pair on ILQ’s front-end order management platform, MetaTrader 4.
In accordance with this agreement, ILQ has agreed to a review of customer trading activity during this time period to calculate potential refunds due to clients. ILQ has stated to its clients that it has reviewed all trading activity and identified that certain accounts qualify to receive a refund.
This refund puts an end to the situation which came about in January this year, whereby the NFA ordered ILQ to desist from offering hedging, due to the company’s system allowing clients to show simultaneous buy/short positions, thus avoiding the US ruling on hedging.
ILQ displayed such accounts with a zero balance, rendering them as legal, however for clients it resulted in having to pay two sets of spread, unless they were able to use the “close by” function on MetaTrader 4.
The NFA took a dim view on this, and ensured that ILQ took steps to put a stop to the practice altogether by the end of January this year.
At the time NFA’s investigation began in March 2013, ILQ had approximately 1,300 customer accounts and over $13 million in total customer liabilities. Since 2011, ILQ had relied extensively on Harrison Associates to support the company’s operations and meet minimum net capital requirements. As of January this year, Harrison Associates, according to the NFA filing, was owed over $38 million through subordinated loans agreements (SLAs) granted to lLQ.
Prior to that, in August 2012, the NFA noticed that ILQ’s daily forex filings showed a significant increase in capital charges on its uncovered forex inventory, which greatly impacted the firm’s excess net capital (ENC), adding to the NFA’s concerns over the firm’s capital position.
This instruction by the NFA, however, was the least of ILQ’s worries, as its entire operation had been the subject of NFA scrutiny which ultimately led to ILQ exiting the US market in April.
The exodus did not absolve ILQ of its responsibilities, however, as the NFA’s action against ILQ and three of its senior directors was imposed post-exit, in July this year.
The letter to clients can be read in full here:
Dear Valued Client,
This is an important letter about funds that are being distributed to you in connection with a previous or current trading account you held with Institutional Liquidity, LLC (ILQ). Please review and consider the contents of this letter carefully and reply by August 22, 2014.
ILQ recently reached an agreement with the National Futures Association (NFA) regarding the manner in which customers were able to place or maintain positions in opposite directions for the same currency pair on ILQ’s front-end order management platform, MetaTrader 4.
In accordance with this agreement, ILQ has agreed to a review of customer trading activity during this time period to calculate potential refunds due to clients. ILQ has reviewed your trading activity and identified that your account(s) qualifies to receive a refund. Please see details of this refund below:
Account Name: __
Affected Account(s): M1_
Total Refund Amount: _$16.29__
Please keep in mind that these accounts are not available for trading since ILQ no longer operates as a Retail Foreign Exchange Dealer. You must request a withdrawal of these funds. Your options for withdrawing these funds are as follows:
Check – Respond with an affirmation that you would like a check sent to you at the address listed above. If your address has changed or the address listed above is incorrect or incomplete please include the correct mailing address in your response. Checks may only be issued to an account in the same name as your trading account.
Wire – Respond with an affirmation that you would like your refund to be withdrawn via wire transfer. Please include your financial institution’s wiring instruction in your response. Wires may only be issued to an account in the same name as your trading account.
PayPal – Respond with an affirmation that you would like your refund to be sent to via PayPal to the e-mail address listed above. If you would like the payment sent to an alternative e-mail address please contact ILQ’s Client Services Department at 1-800-619-5007 or via Chat on your customer portal https://core-us.ilq.com/portal/ . If you do not currently have a PayPal account you may open one at no cost to you at https://www.paypal.com/.
ILQ will not charge any fees, penalties, or other charges associated with the withdrawal of these funds. However, you should be aware that your financial institution may charge incoming wire fees if you elect to withdraw your funds using this option. The wire fees charged by your financial institution could substantially reduce the amount that you receive and may result in a situation in which the wire fees exceed the refunded amount
Additionally, it has been noted that the primary address associated with your account is located outside of the United States. If you elect to receive a check please ensure that your financial institution is willing to accept a check issued by a U.S. bank.
Please note that if ILQ does not receive your withdrawal instructions by November 11, 2014, your refund amount shall be considered an unpaid claim and shall be remitted to NFA.
Please send any response to this notice, including any questions or comments, in writing by e-mail to email@example.com. Please mark the subject of your e-mail as “Response to Refund Notice.”
Very truly yours,
Institutional Liquidity, LLC