Forex (fx) negative balances

The fallout from the Swiss National Bank’s removal of the cap on the Swiss Franc/Euro rate on 15 January 2015 continues to affect fx traders.  Following the insolvency of Alpari (UK) Limited, its administrators at KPMG have now appointed debt collectors CCI to recover negative balances from their clients.

The right of an fx broker to claim a negative client balance is on the basis that because the trades were so highly leveraged, the sudden change in the CHF/EUR exchange rate means that losses have exceeded the amount of initial margin deposited by clients with Alpari.

The response of brokers has not been uniform when it comes to recovering negative client balances.  Some have so far made no attempt to do so while others, which have not become insolvent but which have been adversely affected by the movement in the Swiss Franc, have also taken action to recover negative balances from their clients.

Our advice to traders who receive a demand from their broker payment of a negative account balance is:

First, take such a demand seriously.  There has been much comment on the internet and elsewhere insisting that brokers are not entitled to claim such negative balances from their clients, or that they will not really pursue these claims.  Our advice is that such an assumption may not be correct. Often the sums involved are very significant compared to your assets and also a worthwhile sum for the administrators to pursue – they have a duty to maximise recovery for the broker’s creditors.

Second, do not ignore the demand but take prompt action.  In our experience, debt collectors do not tend to go away of their own accord, and it is much harder to defend a position that has been ignored or handled badly at the outset.

Third, you may have a claim against other parties involved in your FX arrangements, for example a financial adviser or other intermediary who introduced you to the broker. It is important that you handle any claim to refund a negative balance carefully to ensure you protect your right to claim that loss from any relevant third party if you are ultimately held liable to pay it. You could unwittingly and unnecessarily prejudice your position in such a claim by making a misstep in your initial response to the broker or its liquidators/administrators.

Finally, seek your own legal advice and don’t rely on second hand information.  The success or failure in dealing with these issues very often depends on your specific circumstances.  What may work for one trader may not do so for another because the facts are different.  Our team of specialist financial services lawyers are very experienced in dealing with disputes about financial markets and derivatives, including forex trading and products. We can review your contractual terms and conditions to consider whether the broker has, at face value, a valid claim, and we may then be able to suggest possible defences which you may have – based, for example, on any misrepresentations made by the brokers as to the operation of the account.

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