More than $65 million in client accounts are now being frozen after derivatives group Sonray Capital Markets collapsed on Tuesday due to insufficient funds and a derivatives position that took a wrong turn.

Sonray executives were not available for statements or comments, however, administrator Ferrier Hodgson disclosed last night that all accounts would be frozen for the time being to ensure the safety of the clients.

The administrator was appointed after the company went into a financial volatility last month.

An anonymous former employee said Saxo Banks withdrew from the buyout due to the company's negative margin position in the foreign exchange business.

Sonray's collapse will threaten the products sold to retail investors and it would put the Australian Securities and Investments Commission in a tough situation as it will revise its rules to protect retail investors from trading derivatives products such as contracts for difference (CFDs).

The new regulatory guidelines would be released within a week.

CFDs are said to be one of the most dangerous financial instruments in the market and are banned from being used in the United States.

Collapsed stockbroker Opes Prime used the same model, which left its clients unsecured when its business failed.

However, Sonray's case was different as it focused on a 40-age CFD and margin foreign-exchange product disclosure statement, where a warning was issued that a client's money was held in a segregated account and was “co-mingled” into one account.

Another warning is issued stating that the individual client's balance sheet may not be protected if there is a default from another client that results in a loss to the overall account balance.

If Sonray goes bankrupt, all its clients would become unsecured creditors. Thousands of clients are worried if they will get their money back after the announcement that their accounts were frozen.

The first creditors' meeting will be held next Friday in Melbourne.

Sonray Capital is the biggest white reseller of CFDs for Saxo Bank in Australia.