Cayman discount broker OneTRADEx has been placed into provisional liquidation following a court hearing on Tuesday, 3 Sept. The primary purpose of the provisional liquidation is to facilitate the sale of certain parts of the business that the company has with Interactive Brokers.
OneTRADEx uses US broker Interactive Brokers’ trading platforms and systems under its own brand name. This enables clients to carry out stock trades from Cayman without having to be registered in the US for tax and other regulatory purposes.
The Cayman Islands Monetary Authority took control of OneTRADEx on 18 July by appointing Kenneth Krys and Angela Barkhouse of KRyS Global as controllers of the company. The controllers, who are now the provisional liquidators, reported to the regulator that the company is “in serious breach” of the Securities Investment Business Law and related regulations.
In an update to the broker’s clients and creditors, the provisional liquidators said on 4 Sept. those breaches related to legal requirements of advising CIMA of any changes in relation to information provided during licensing and the filing of audited accounts and certificates of compliance.
The company had also not complied with securities investment business regulations in relation to requirements to maintain adequate professional indemnity, professional liability and business disruption insurance; advertising standards; proper controls for managing client monies; safeguarding client assets; segregating assets; reconciling client accounts; and holding client accounts at approved banks.
Other regulatory breaches identified by the controllers concern the maintenance of adequate accounting records and internal controls and the regular reconciliation of balances at banks and other intermediaries.
The provisional liquidators said certain assets are held in a way that may put client assets at risk. Client funds were also used without authority to fund stock loan transactions. However, the principal amount of those transactions was returned to the company.
In addition, certain client accounts with negative balances or significant margins expose other clients and the company to potential liability, the liquidators said.
They also found a dispute in two accounts over the ownership of assets and whether all assets are accounted for.
The provisional liquidators further noted that “a proprietary account held in the name of OneTRADEx with Interactive Brokers appears to have been set up for the sole purpose of concealing the true beneficial owners of certain clients who did not meet the compliance requirements of Interactive Brokers”.
Finally, OneTRADEx’s financial position poses a substantial risk that it is or is likely to become insolvent, they added.
The liquidators said certain identified issues “are very complex and further investigations will take time and resources”. They propose the formation of an ad hoc committee to get the clients’ views on how to deal with any outstanding issues cost-effectively.
At Tuesday’s hearing, the Grand Court ordered the provisional liquidators to apply to the court within 28 days to seek directions on the ownership and proper treatment of assets held by the company.
“Clients will be provided with the details of the applications being made and will have an opportunity to be heard at any hearing,” the provisional liquidators said.
In the meantime, there is a moratorium on creditors and clients filing any claims or pursuing litigation against the company.
The provisional liquidators will contact clients in the next days to confirm account balances and aim to meet with creditors and clients next week to answer questions and form an ad hoc committee.
During their controllership, the liquidators identified potential purchasers of parts of the business and selected a successful bidder. They will now focus on finalising a sales agreement with the prospective buyers before seeking the consent of relevant clients, the courts and the regulator.
The liquidators said they will work with clients who consent to having their accounts moved to the buyer so that “they can continue trading and have access to the majority of their assets”.
“Whilst clients will continue to be able to trade their full accounts with the new broker, it is currently anticipated that a portion of client accounts will continue to be held in reserve pending the process being undertaken by the provisional liquidators to identify client and company assets, with a view to releasing all client monies as soon as possible,” they added.