Numerous retail FX brokerages have been facing major problems after the Swiss National Bank, unexpected abandonment of the capping of the Swiss Franc against the Euro. A number of brokerages have been forced to enter into insolvency proceedings, following the market turmoil which followed this unexpected announcement. The announcement resulted in exceptional volatility and a glut of liquidity, which meant traders positions could not be closed with liquidity providers.
This meant that many retail traders accounts were massively in the red by the time retail brokers were able to close their client positions with liquidity providers. This left many brokerages facing a huge margin call from their liquidity providers, with many brokerages simply being unable to cover the losses which have been passed onto them from the huge client losses inflicted on many retail traders.
The world’s largest retail FX brokerage, FXCM has been plunged into real trouble following the recent moves in the Swiss Franc. With the brokerage announcing that the movements in the Swiss Franc had led to the brokerage incurring a total of $225 million in losses. The company also stated that the volatility and lack of liquidity in the Swiss Franc may have led to the brokerage fall below of US capital regulatory requirements with the brokerage stating that they have been talking to US regulators regarding this matter. This news sent FXCM plunging in US market pre-trading, with the brokerage’s share price falling by 53%.
New Zeland based Excel Markets has shut down with the brokerage also facing the same problem as faced by FXCM. With the brokerage stating the extreme volatility and lack of liquidity in the Swiss Franc meant the firm could no longer meet the minimum capital requirements set out the countries regulator. The brokerage published a long statement explaining the situation:
The dramatic move on the Swiss franc fueled by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in rare volatility and illiquidity. Both our primary and backup liquidity providers became unresponsive or illiquid for hours after the event. The majority of clients in a franc position were on the losing side and sustained losses amounting to far greater than their account equity. When a client cannot cover their losses it is passed onto us.
ALL OPEN POSITIONS MUST BE CLOSED BY 5PM NEW YORK TIME OR THEY WILL BE AUTOMATICALLY CLOSED AT THAT TIME. NEW POSITIONS CANNOT BE OPENED AS OF THIS TIME.ALL CLIENT FUNDS ARE IN SEGREGATED ACCOUNTS AND NEVER USED FOR LP MARGINS. 100% OF POSITIVE CLIENT EQUITY OR BALANCE IS SAFE AND WITHDRAWABLE IMMEDIATELY.
Global Brokers NZ Ltd. STP’s 100% of order flow and has sustained a total loss of operating capital.GBL can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business. Losses incurred on trades that could not be exited due to illiquidity were losses incurred directly with the liquidity provider and we do not have the ability to reimburse those. Please note the interbank market for francs was illiquid for hours after the event and no traders with an open franc position were able to close it for a significant period of time, at any broker.
News of the impact of this event on companies and traders is just beginning to come to light. As Directors and Shareholders we would like to offer our sincerest apologies for this devastating turn of events, and to thank you for being such a supportive group.
We ask that you place withdrawal requests for your account balance at your earliest convenience and allow for minor delays as our team begins to experience higher than usual service volumes.
Well known and respected FX brokerage Alpari has announced that it has been forced to enter into insolvency proceedings due to the moves which occurred in the Swiss Franc. Clients of the brokerage categorised as retail traders will be able to recover up to £70,000 via the UK’s investment compensation scheme, but traders will likely experience some delay in receiving their funds. The brokerage also provides liquidity for a number of smaller retail brokerages, so it appears that there may some contagion with a number of other brokerages being forced to shut up shop due to the developments with the firm. Read the full Alpari story here.