THE collapse of securities execution service provider Sonray Capital Markets is bad news for those clients caught in its funding black hole. But it is likely to save many more unsuspecting derivatives gamblers and traders from a similar fate.
Sonray was a relatively small player with about 4000 clients. But it made a number of costly errors, now being paid for by the clients. The first of these was the decision not to report a rogue trader to the regulator. The next was Sonray’s decision to pay those affected by the non-approved trades with other clients’ money. And finally, there was Sonray’s attempt to get square by trying to trade its way back to break-even — again using its clients’ money.
The only positive to come out of this whole mess is the sunlight it has cast on the treatment of client monies, which should ring alarm bells for clients of other derivatives operators. Canny traders should assess the risk of their broker going belly up and get out if they don’t have that appetite.
There is also a strong argument that these co-mingled models are a fiduciary failure, and that the Australian Securities & Investments Commission should only allow them to be made available to sophisticated investors.
CFD Account Security
Filed under: CFD News by LearnCFDs.com
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THE collapse of derivatives group Sonray Capital Markets on Tuesday – with more than $65 million frozen in client accounts – was the result of a derivatives position that blew up, leaving the group’s pooled account in margin call, and Sonray with insufficient funds to close it out. Sonray executives were not answering calls yesterday but administrator Ferrier Hodgson said last night that all accounts would remain frozen to ensure there was no further risk to the group.
The appointment of the administrator followed a period of extraordinary volatility for the broking company on financial markets last month. One former employee said that a negative margin position in the foreign exchange business contributed to Saxo Bank’s withdrawal from a potential buyout.
The collapse further highlights the dangers of derivatives products sold to retail investors, and is expected to speed up the release by the Australian Securities and Investments Commission of tougher rules to strengthen the protections for retail investors trading derivatives products such as contracts for difference (CFDs). The new regulatory guidelines are expected to be released within a week.
Filed under: CFD News by LearnCFDs.com
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The Sonray Capital Markets group, that made a name for itself in the booming but controversial market for derivative trading instruments, ceased trading yesterday after appointing Ferrier Hodgson as administrator late on Tuesday. While it is not yet clear how much money is tied up in the suspended accounts, clients are understood to be mostly retail investors, including retirees who manage their own superannuation funds.
Ferrier Hodgson is investigating the circumstances of the collapse and will confer with the Australian Securities & Investments Commission as soon as possible. Sonray, founded in 2003 by securities and derivatives specialist Russell Johnson and his brother-in-law, Scott Murray, joins a growing list of financial services outfits that have collapsed since the onset of the global financial crisis, including Opes Prime Group, Chimaera and Lift Capital.
According to Sonray’s website, the firm specialised in online and advisory services in global equities,futures and foreign exchange. It also claims to be one of the first companies in Australia to offer contracts for difference, or CFDs, which have grown in popularity in recent years but have also been the subject of regulatory concerns worldwide due to the risks posed to unsophisticated investors.
While Ferrier Hodgson has yet to ascertain the cause of the firm’s failure, sources close to the group have claimed that recent attempts to expand into equities and corporate advisory might have been its undoing. Late last year, Sonray entered into a partnership with Europe’s Saxo Bank to launch a new online trading platform.
CFD Broker Sonray In Receivership
Filed under: CFD News by LearnCFDs.com
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