Another month, another spreadbetting scandal… Just before markets shut down for the Easter long weekend, the Independent reported that Ireland’s Central Bank on Thursday instructed MarketSpreads to halt all client trading activity, close all client positions, and to freeze all client accounts.
The regulator’s action stems from what they are calling “legacy financial issues”, which MarketSpreads’ management has pointed out “stem from prior to December 21st 2009 when the firm was owned and managed by others.” Auditors Ernst & Young have been unable to express an audit opinion on MarketSpreads’ 2009 accounts.
MarketSpreads’ management also posted on their home page (see below) that “client funds are 100% intact and MarketSpreads is solvent and profitable.”
The long weekend may indeed buy MarketSpreads some time, while accounting firm Grant Thornton prepares a report to be handed to the Irish Central Bank on Tuesday, to reportedly assure “to the Central Bank that all client liabilities are matched with segregated funds…”
The MarketSpreads action follows last month’s collapse of WorldSpreads, which is seeing regulators and investigators still searching for answers as £13 million of client money has gone missing. The WorldSpreads and MarketSpreads situations are obviously much different, although in an ironic twist the two companies are historically related, with MarketSpreads originating as a part of WorldSpreads before a 2010 management buyout separated the two companies.
If MarketSpreads’ management is to believed, and this turns out to be just a historical accounting glitch which needs to be addressed, then it is likely that the MarketSpreads story will have a happier ending than what occurred at WorldSpreads. But given investors’ increasing mistrust of trading firms following the collapse of WorldSpreads (and MF Global last year), and the fact that all client open positions were forced to close, it may take some time for MarketSpreads to rebuild investor confidence in the company, after the Central Bank’s action.