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2 FX Brokers Suffer "Significant Losses" After SNB Surprise, "In Breach Of Regulatory
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2 FX Brokers Suffer "Significant Losses" After SNB Surprise, "In Breach Of Regulatory

  #1 (permalink)
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2 FX Brokers Suffer "Significant Losses" After SNB Surprise, "In Breach Of Regulatory

In a re-run of the catastrophic trading losses that occurred around the Russian Ruble collapse last month (as we described here and here in great detail), two FX brokers (US-based FXCM and New Zealand-based Excel Markets) announced tonight that they “can no longer meet regulatory minimum capitalization requirements," due to "significant losses" suffered by clients. For FXCM these losses mean a $225 million negative equity balance and they are actively discussing alternatives with regulators. For Excel Markets, it is over... "we will not be able to resume business...Client positions will be closed within the next hour."

FXCM is in trouble...

*FXCM: CLIENTS EXPERIENCED SIGNIFICANT LOSSES AFTER SNB MOVE
*FXCM: NEGATIVE EQUITY BALANCES OWED TO FXCM ABOUT $225M
*FXCM: MAY BE IN BREACH OF SOME REGULATORY CAPITAL REQUIREMENTS
*FXCM DISCUSSING ALTERNATIVES TO RETURN CAPITAL TO PRIOR LEVELS

FXCM an online provider of forex trading and related services worldwide, announced today 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.

The broker's stock has collapsed...

* * *

And Excel Markets is done (as ForexLive's Adam Button explains)... Forex broker Excel Markets calls it quits on SNB shocker

Clients of New Zealand forex broker Global Brokers NZ Ltd, which operates Excel Markets, have been told the company “can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business.” Client positions will be closed within the next hour.

Here is the statement (the emphasis, bolding and caps is theirs):

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.

In my opinion, any broker that uses ALL CAPS deserves whatever they get.

We’re encouraged that client funds are segregated. They won’t be the last to go under on this and we hope that everyone has been prudent with client money.

http://www.zerohedge.com/news/2015-01-15/2-fx-brokers-suffer-significant-losses-after-snb-surprise-breach-regulatory-capital-

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  #2 (permalink)
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and the NZ Herald article/link

Auckland currency broker closes after Swiss shock - Business - NZ Herald News

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  #3 (permalink)
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Irresponsible Central Bank and Excessive Leverage


The problem here is leverage. FX brokers are competing against each others for customers and allowing for leverage of up to 1:500, see list here

https://www.100forexbrokers.com/high-leverage-brokers

This leverage is ridiculous. Let us assume that a majority of the customers were short the Swiss Franc and that the broker took the opposite position long the Swiss Franc. The broker would further enter a short position with banks to reduce exposure. After the sudden move of 2,500 pips many customers could not meet the requirements and their accounts would be liquidated. The broker is left with a net short position from the hedging which was done to neutralize customers positions.

The hedging was necessary in case that the Swiss Franc would drop, as it did during the last months when it was linked to the Euro. The point here is that the broker is exposed whether hedged or not. If the broker does not hedge, he loses big when the Swiss Franc drops. If he hedges he loses big when the Swiss Franc rises, because retail customers cannot meet their margin requirements.

As usual leverage is the problem. US citizens are only allowed to use a maximum leverage of 1:50. This is good but not good enough, as it only covers losses from a 2% move of any currency. Not enough protection, if a central bank goes mad and triggers a currency move of 20%. I think that the behaviour of the Swiss Central Bank was irresponsible.

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Add Alpari to the list.

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FXCM stock is now down 86%.

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FXCM stock is now down 86%.

shares just halted pending news per cnbc

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sam028 View Post
FXCM stock is now down 86%.

I briefly considered buying some stock here, because I believe FXCM can ride this storm.

Mike

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I briefly considered buying some stock here, because I believe FXCM can ride this storm.

Mike

Me (long puts) too but as it's halted now, wait & see.

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Deutsche, Interactive Brokers, Barclays Lost Hundreds Of Millions Due To Swiss Franc Volatility | Zero Hedge
  • DEUTSCHE BANK LOST ABOUT $150M THURS DUE TO SWISS FRANC VOLATILITY: SOURCE
  • BARCLAYS LOST TENS OF MILLIONS OF DOLLARS THURS: SOURCE
  • INTERACTIVE BROKERS GROUP SAYS "SEVERAL" CUSTOMERS SUFFERED LOSSES IN EXCESS OF THEIR DEPOSIT AMOUNTING TO APPROXIMATELY $120 MILLION, LESS THAN 2.5% OF CO'S NET WORTH

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Thread over at Oanda. https://fxtrade.oanda.com/community/forex-forum/topic/54010615/

No update on how much they are in the hole.

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