Investors struggled to hold their positions yesterday as the Irish market plunged 4 per cent, triggering a fresh round of margin calls on "contract for difference" (CFD) investments from Cantor Fitzgerald.
"Complete carnage" was how one Dublin dealer described the Irish market.
CFDs, where investors take a position on the future direction of a share price and place a margin of 10-20 per cent of their nominal investment, have become an increasingly popular investment in the Irish market.
However, the sharp fall of the Iseq this year after two years of table-topping performance, has seen these investors exposed.
In August, Cantor Fitzgerald liquidated Irish investments worth more than €400 million after demanding that investors double their margin on CFDs.
But shares have continued ot tumble. Shares in AIB, Bank of Ireland and Anglo Irish Bank, which are among the most widely held by Irish CFD investors, have slipped by 9 per cent, 13.8 per cent and 8.9 per cent respectively in the first two weeks of September.
Ryanair, the most significant CFD holding through Cantor, is 6.4 per cent weaker this month, while another leading CFD stock, CRH, is 13 per cent off over the same period.
Cantor is one of the largest players in the Irish CFD market. Its products are sold to investors through brokers, the most active of which are understood to be Davy and Goodbody.
The Iseq index closed 3.5 per cent weaker last night, wiping €3.5 billion off its overall value and closing at its lowest level in more than a year. This is the first time the index has closed below the 8,000 level since September last year and leaves its loss so far this year at almost 17 per cent.
One dealer said the news that Northern Rock had called on the Bank of England for financial support - the first time this has happened since its independence in 1997 - had triggered a huge sell-off in banks around the world, and Ireland was no exception. With the dominant position of the banks in the Irish index, the Iseq was dragged down to record the worst performance yesterday by a European index.
Dealers said anything that was vaguely financial or construction related had fallen out of favour, and the fact that these stocks accounted for about 70 per cent of the Irish market had made the Irish story an impossible one to sell. "Buying interest in the market was more or less non-existent," said one dealer, adding that investors just seemed determined to exit the market - and banks in particular - at any price.
The forced sale of CFDs would only have exacerbated the downward trend.
He said the international feeling was that the Irish market was far too heavily weighted towards the property sector and the concern about the possible knock-on effects of subprime mortgages was proving a complete turn-off.
