MarketSpreads forced to stop trading as Central Bank suspends licence

THE CENTRAL Bank has suspended the trading licence of one of Ireland’s largest spreadbetting businesses after auditors expressed concerns over historic accounts.

The Central Bank instructed MarketSpreads to suspend trading late on Thursday, citing “capital adequacy and audit opinion issues”.

In a statement yesterday, MarketSpreads said the issue did not affect client funds, said to be between €5 million and €10 million, which it stressed were segregated from its own funds, properly managed and “100 per cent intact”.

The bank, which regulates spreadbetting companies, told MarketSpreads to suspend operations after it recently filed accounts for the nine months to December 21st, 2009.

This covers the period immediately before MarketSpreads’ current owners bought the business from its previous shareholder, WorldSpreads plc.

As a result of a number of issues discovered while they were compiling financial statements for that period, MarketSpreads management had to restate figures from the previous 12 months to March 31st, 2009 .

As a result, the accounts show a €7 million writedown in assets.

The company’s auditors, two senior partners with Ernst Young, said they were not in a position to state whether or not the financial statements gave a true and fair view of the company’s affairs.

It is understood that the auditors’ statement prompted the Central Bank to suspend the licence.

As a result of issues discovered by management after the purchase of the business in 2009, MarketSpreads is suing WorldSpreads for fraudulent misrepresentation and breach of warranty. .

The Central Bank wanted MarketSpreads to come up with an extra €2.8 million to satisfy capital adequacy rules.

To meet this requirement, Ray Curran – a director of the company and one of its biggest shareholders – had agreed to convert loans valued at €2.4 million into preference shares, and to forego a €100,000 interest payment.

There was further capital available to the company in the form of a withheld €1.4 million payment to WorldSpreads, which it no longer believes should be treated as a liability.

In an email to account holders, MarketSpreads said it received an instruction from the bank at 4pm on Thursday to suspend client trading.

On foot of this, management took the decision to close all open positions, it added.

In its email, MarketSpreads insists that the company remains “profitable and solvent” and that all client funds are properly segregated.

“We are in the process of closing down all client positions and will do so as fairly and efficiently as we possibly can,” it says.

On Thursday, the company unsuccessfully sought a High Court order overturning or staying the Central Bank’s suspension of its licence.

MarketSpreads said despite previously affirming that its client funds were “properly managed”, the Central Bank had instructed it not to release any funds to clients until further notice.

The bank is due to receive an independent report on the company’s trading position from accountants Grant Thornton on Tuesday.

MarketSpreads bought the business from WorldSpreads in December 2009 and renamed it. The two have been completely separate entities since then.

WorldSpreads, which is headquartered in Dublin, went into administration last month after it was found to have a shortfall of €15.6 million of client money.