A report from the Montevideo Stock Exchange, in its capacity as controller of the stock broker Custody of Securities Transfers (CVM), concluded that bank endorsements barely cover 0.7% of customer funds. “The cash balances in dollars in the custodian banks barely cover 0.7% of the positions of the clients with cash balances, therefore, the returns of the cash balances will be subject to what the existing availabilities allow,” he says. The document.
The CVM holders, that is, Sara Goldring and her children, have been investigated in Uruguay for an alleged fraud in their CVM. The seized accounts have a capital of US$ 20 million. On the other hand, the BCU began to notify all its clients about their available balances from April 5, 2022 to date.
The BCU appointed the Commercial Defense League as liquidator
The auditor’s report tells how this situation came to be. He affirms that in order to carry out operations on behalf of its clients, CVM had accounts in its name in financial entities abroad, where custody of the
funds and securities of clients, which is called “omnibus account”.
In turn, CVM carried out sales operations for some of the clients that operated in the omnibus account. This is called a put option and with this contract the buyer acquires the right but not the obligation to sell his assets.
It adds that to ensure compliance with the contract, the foreign financial entity “requires the seller of the put option to maintain a guarantee in liquid funds or securities that is approximately between 5% and 30% of the nominal value of the operation.” It clarifies that “when the market prices of the underlying assets fall, at the request of the foreign custodian banks, these guarantees must be increased to keep the options sold open.”
That was what happened in this case. “Between November 2021 and June 2022, the United States stock market faced a phase of declining prices and CVM did not require those clients for whom it carried out put sales operations in the omnibus account, the constitution of the guarantee required by the custodian banks to be able to carry out this type of operations”.
“It is thus that when the put was executed (that is, when the CVM counterparty exercised its put option) and losses were generated from these operations, several clients were left with negative positions because the funds or values they had in their accounts were insufficient to pay to the counterparty the corresponding consideration.In order to cover said negative positions, the cash and securities of other clients that were in the omnibus account were affected, without limiting itself -as it would have corresponded- to affecting the cash and securities of the respective customers for whom each put option had been sold. details the report.
From May 10 to June 16, 2022, CVM stopped recording the operations carried out, so that “the operations carried out and therefore their losses were not registered in the individual accounts of the clients as it would have corresponded.”
