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If yesterday was a tough day for FX traders, today it’s the brokers themselves feeling a brutal hangover from the huge move in CHF. The Swiss National Bank yesterday announced that it would cease to defend the CHF1.200 level, something that it had described last week as “a cornerstone of SNB policy”. THe announcement sent shockwaves not just through Switzerland, but across the FX sphere as markets saw the announcement as well as the lowering of the Swiss refi rate target into negative territory as a harbinger of imminent moves to unleash QE by the European Central Bank.
Huge numbers of traders were caught out by the huge currency moves and by insufficient hedging. But brokers themselves were also hit hard by their own currency positions in place to hedge client positions and by loss of business as clients blew up accounts.
Alpari insolvency
The biggest news from brokers this morning was that Alpari had entered into insolvency as a result of client losses. In a statement, the FCA-regulated brokerage stated that: “The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity.
This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us.
"This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency.
"Retail client funds continue to be segregated in accordance with FCA rules.”
Once Alpari had gone bust, markets got the scent of blood. FXCM, the biggest broker in the retail FX industry by market cap has seen its stock plummet by 90 percent in pre-market trading, hitting a low of USD1.52.
FXCM regulatory capital concerns.
In a statement published on its website, FXCM stated that: due to unprecedented volatility in EUR/CHF pair after the Swiss National Bank announcement this morning, clients experienced significant losses, generated negative equity balances owed to FXCM of approximately $225 million.
“As a result of these debit balances, the company may be in breach of some regulatory capital requirements.
“We are actively discussing alternatives to return our capital to levels prior to today's events and discussing the matter with our regulators.”
With more than an hour to go until the Nasdaq opens in earnest, today is going to be a tough day for FXCM’s share price.
Calm after the storm
The good news for brokers that weather the storm is that there should be some cheap acquisitions on the market for those with the cash reserves. Over recent years the industry has been going through a period of pronounced consolidation with the larger brokers able to meet the increasing regulatory capital requirements and to use their economies of scale to dominate the market and buy up smaller brokerages and client lists. Both IG and FXCM have a long shopping list of smaller brokers they’d probably like to snap up and providing they can get through this immediate tumult, could be in a position to entrench their market strength.
Huge numbers of traders were caught out by the huge currency moves and by insufficient hedging. But brokers themselves were also hit hard by their own currency positions in place to hedge client positions and by loss of business as clients blew up accounts.
Alpari insolvency
The biggest news from brokers this morning was that Alpari had entered into insolvency as a result of client losses. In a statement, the FCA-regulated brokerage stated that: “The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity.
This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us.
"This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency.
"Retail client funds continue to be segregated in accordance with FCA rules.”
Once Alpari had gone bust, markets got the scent of blood. FXCM, the biggest broker in the retail FX industry by market cap has seen its stock plummet by 90 percent in pre-market trading, hitting a low of USD1.52.
FXCM regulatory capital concerns.
In a statement published on its website, FXCM stated that: due to unprecedented volatility in EUR/CHF pair after the Swiss National Bank announcement this morning, clients experienced significant losses, generated negative equity balances owed to FXCM of approximately $225 million.
“As a result of these debit balances, the company may be in breach of some regulatory capital requirements.
“We are actively discussing alternatives to return our capital to levels prior to today's events and discussing the matter with our regulators.”
With more than an hour to go until the Nasdaq opens in earnest, today is going to be a tough day for FXCM’s share price.
Calm after the storm
The good news for brokers that weather the storm is that there should be some cheap acquisitions on the market for those with the cash reserves. Over recent years the industry has been going through a period of pronounced consolidation with the larger brokers able to meet the increasing regulatory capital requirements and to use their economies of scale to dominate the market and buy up smaller brokerages and client lists. Both IG and FXCM have a long shopping list of smaller brokers they’d probably like to snap up and providing they can get through this immediate tumult, could be in a position to entrench their market strength.
