Largest Retail FX Broker Stock Crashes 90% As Swiss Contagion Spreads

Tyler Durden's picture

UPDATE: Knight Trading 2.0? Jefferies executive are reportedly on-site at FXCM discussing a $200 million bailout

As we first reported last night, FXCM was among the first of many retail FX brokers (and the largest) to see its clients suffer massive losses from yesterday's Swiss Franc surge following the SNB decision to unleash market forces. There are now at least 4 retail FX brokers (FXCM, Excel Markets, OANDA, and Alpari) who have announced "issues" but FXCM, being among the largest and publicly traded is the most transparent example of wjust what can go wrong when average joes are allowed 100:1 leverage. FXCM is now stuck chasing clients for money they do not (and will never) have.. and its stock is down 90%, trading a $2 this morning (down from $17 on Wednesday). As Credit Suisse notes, time is running out as regulators "tend to be impatient once capital requirements are breached."

 

FXCM crashes...

 

And the crashes some more as Credit Suisse suggests it's all over

 

We suspect there will be considerably more to come as CME's triple margin kicks in today...

*  *  *

So far 4 brokers have issues...

UK-based Alpari

From Alpari's statement: 

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.

This is what Alpari's CEO, James Hughes, who dubbed the SNB move as "horribly irresponsible", for obvious reasons now, said:

"I'm sure this isn't the last we'll hear on the subject and the SNB are going to be heavily scrutinised in the coming weeks for what appears to be a horribly irresponsible move on their part. For years central banks have tried to avoid days like today by being transparent and making moves like this over time while drip feeding their intentions to the markets. The SNB have shown themselves to be amateurs today and there is many people that will suffer considerably as a result."

* * *

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.

*  *  *

National Futures Association is in contact with FXCM...
“We are in contact with the firm and the CFTC and have no further comment at this time”: Karen Wuertz, spokeswoman for the National Futures Association, the futures industry’s self-regulatory agency.
*  *  *

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.

*  *  *

Which likely explains the carnage after the market close today in EURCHF

 

*  *  *

Canadian firm OANDA says suffered loss on Swiss Franc move...

Brokerage says client enquiries, withdrawals and deposits are being handled as normal, according to a statement on its website:
 
 
In the wake of unprecedented market events this morning, OANDA demonstrated its ongoing commitment to doing right by its clients.
 Despite suffering losses and vanishing liquidity in the institutional hedging market, OANDA remained true to its 14-year legacy of transparency, integrity and fairness to our clients. OANDA did not re-quote or amend any CHF cross client trades. We even took the further step of forgiving all negative client balances that were caused when clients could not close out their positions fast enough.
 
Client inquiries are being handled normally and those making withdrawals and deposits are able to do so as normal.
 
OANDA is proud of its strong reputation for fairness and integrity. We thank our customers for their continued loyalty and welcome new traders who want to experience outstanding service and execution.

*  *  *

4 down - more to come...

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HardlyZero's picture

Black Swan Trigger.

Rubicon's picture

"I'm sure this isn't the last we'll hear on the subject and the SNB are going to be heavily scrutinised in the coming weeks for what appears to be a horribly irresponsible move on their part. For years central banks have tried to avoid days like today by being transparent and making moves like this over time while drip feeding their intentions to the markets. The SNB have shown themselves to be amateurs today and there is many people that will suffer considerably as a result."

 

I said that when they first pegged it.

Tao 4 the Show's picture

I made two points when they pegged:

1. Their industry really needed it to avoid devastation by money coming in driving the CHF up.

2. There would be a big price to pay

Very important is the fact that even a central bank could not hold back reality forever. Guys like Ghordius kept saying, "their business, nothing to see here". But this is wrong. Moves by central banks affect us all.

The SNB saved Swiss industry for a few years, but it was through fantasy. And yet, everyone is shocked when the fantasy ends. Martin Armstrong has his ups and downs, but one point he makes is correct. It is all about confidence. Now that a central bank openly failed and Swiss business will be flogged, confidence in the whole fantasy of CB omnipotence is shaken.

Therefore, rest assured that the SNB will be horribly criticized. The reason will not be their decisions. The real reason will be that they must be criticized in order for the media/established order to cling to some semblance of feign confidence in the CBs.

cifo's picture

The good thing about this is that a lot of stupid traders have been eliminated.

When you live by the sword, you die by the sword.

100:1 leverage? You better be very very skilled.Or lucky.

wallstreetaposteriori's picture

Nothing to see here.... they were just "fat" finger trades.... reversals coming soon?

mayhem_korner's picture

 

 

That chart is showing a Green Eggs and Ham train-into-the-boat formation...

SWRichmond's picture

AIGFP, anyone?

Anyone think there might be some leverage behind an FX trading house?

eclectic syncretist's picture

This move by the SNB is how the owners of the Central Banks take out the competition. 

PartysOver's picture

Who'da thunk the Swiss would have laid the Black Swan Egg.   Now we wait to see if it hatches.

MillionDollarBonus_'s picture

WHY ISN'T THE GOVERNMENT DOING ANYTHING TO HELP INVESTORS WHO HAVE LOST THIR ENTIRE DEPOSITS DUE TO THIS UNACCEPTABLE MOVE BY THE SNB!! THIS IS INSANITY! WE NEED HELP AND NOBODOY IS DOING ANYTHING!!! WTF???

surfsup's picture

Alpari and FXCM : two of the most vile operators of "desk games" out there...   One has to wonder if deviousness doesn't make the mind dull as it cannot then function with clarity under pressure...    Keeping a desk "solvent" actually DOES require good trading skills and skill rarely if ever accompanies deviousness -->

Liberal's picture

I'm with you, MDB! We need more democrats in control! Vote for Obama!

fockewulf190's picture

TRADE FOREX LIKE A PRO!  

 

How many times have I heard that ad being harped over CNBC Europe. 

 

How many thousands of mangled muppets are lining the curbs of our streets and highways?  The horror!  The horror!

http://farm1.static.flickr.com/44/138233880_7bbb221d31.jpg

http://2.bp.blogspot.com/_aYepJG1hh68/Swi2LuU178I/AAAAAAAAASQ/VPLONySWfW...

https://c2.staticflickr.com/4/3663/3319094713_9a8d65accb_z.jpg?zz=1

BigJim's picture

 As Credit Suisse notes, time is running out as regulators "tend to be impatient once capital requirements are breached."

Lulz, unless you're Goldman Sachs, JP Morgan, or... dare I say it... Credit Suisse.

Then the regulators just suspend the accounting rules.

DetectiveStern's picture

Gambling debts (which these brokers fall under in the UK) are unenforcable so good fucking luck getting any money from UK "clients".

cnmcdee's picture

Some people forgot the FOREX trading rules.

1. Central Banks will *always* move a currency pair opposite the mass muppets position..

2. Central Banks have *really* good timing to do it just when the maximum amount of muppet participation is occuring.

3. Central Banks will *always* move a currency pair just enough to hammer out 95% of the stops before it bounces back.

And the formula is repeated.

 

7.62x54r's picture

The real amatuer here is Hughes at Alpari.

They allowed 100-1 leveraged bets, and when the SNB did something unexpected ( an act of fiscal sanity in the face of world-wide Keynesian idiocy ), they all lost their fucking shirts.

Screw them, and the horse they rode in on.

ilion's picture

Vultures are already flying around FXCM, Alpari and the rest. IG Markets, Jeffreys, Tickmill. This industry will face huge consolidation over the coming months.

 

Tickmill is seeking to acquire client portfolios of FX brokers

Tickmill
announced today its readiness to buy client portfolios and assets of FX brokers who have run into difficulties due to recent market events related to record Swiss Franc volatility.

With a strong capital base Tickmill is looking forward to seize this historic opportunity and significantly increase its client base and market share.

The management was able to foresee recent Swiss Franc developments. As a result, the company was not affected by market moves thanks to the excellent risk management systems and Tickmill’s directors, who have over 15 years of experience in the FX industry.

Tickmill stands strong to onboard unlimited number of new clients and is also able to absorb FX brokers who lack sufficient capital for operations.

 

Same from IG:

LeapRate has learned from industry sources that leading UK spreadbetting broker IG Group Holdings plc (LON:IGG) is looking to buy forex brokers and/or their client lists in the wake of yesterday’s heavy losses suffered by many in the industry.

IG itself reported £30 million in Swiss Franc trading related trading losses with clients. A large amount for sure, but not all that significant in the grand scheme of things for IG – according to IG’s last results presentation in July 2014 they held over £400 million in cash reserves. IG did £370 million in revenue and £195 million in pretax profit in its most recent fiscal year (ended May 31, 2014). So again, £30 million is a lot of money but not something to be too concerned about.

Essentially, IG is looking to acquire the client list of brokers which are unable to meet their regulatory capital requirements. The first official FCA regulated broker to declare itself insolvent was Alpari UK.

 

We’ll keep tabs on this story, and all the Swiss Franc volatility fallout, as it develops.

aPlayer's picture

Why would you say that Tickmill and IG Markets would be interested in that shit called Alpari?

One thing is for sure, these brokers will gain a lot of market share over the coming weeks as a lot of the dinosaurs like Alpari, FXCM, Excel, etc are becoming extinct.

new game's picture

i lost a pound off my scranny ass laughing. 

financial pain by the insiders is as hillarious as it gets.

now it is whine and feel sorry for me time.

fuckem, jumpers yet?

you might suspect i have zero respect for the financial community.

a few exceptions, mainly people like cog dis, who left on his terms.

 

847328_3527's picture

We bankrupted some folks.

LawsofPhysics's picture

No risk no reward asshat.

Leave the taxpayer alone or I will be more than happy to take your motherfucking head.

7.62x54r's picture

MDB's satirical intent flew right over your head, didn't it?

Blano's picture

Automatic green arrow now whenever you show up MDB.

weburke's picture

carpe diem MDB, your still alive

 

SumTing Wong's picture

Anyone else think this is just the first shot across the bow? Or are many of you thinking this is the big deal, and it will cause the problems? I'm thinking it is just the first domino, some people get taken to the cleaners, and then when the dust settles...another currency/country has to go tits up.

Glad to hold arable farmland, weapons, a skill set, and some gold and silver.  

G.O.O.D's picture

Ok, I have decided as a longtime member of the fight club I am now throwing my hat into the ring for president of MerKa. My platform is simple. i am a believer in the KISS system and I have an answer to all questions and a solution for all problems. To everything that is a concern i say "fvk u we will bomb ya."  You want QE? Fvk you we will bomb ya. Some ole granny concerned about social security? fvk you we will bomb ya. school bus has a flat tire and is holding up traffic..fvk em bomb em. Too many fat ugly dumb fvks in the line at walmart..bomb the steenkin pieces of pigshit.

 

 

Now, you damn well better give generously to my campaign.

weburke's picture

there is one little qualification .............. the big secret is that the elites decided they had enough, and now only members of their family are allowed as president. obama actually IS a member of their family. you can tell who is pretty easily.  you see guys the media keep promoting as pres candidates, some of the buffons are there to just make sure the family buffons dont look so bad. 

G.O.O.D's picture

Let me get this straight.. you are saying that the election process is rigged? I am shocked! Next thing you are going to tell me is the news on teevee is lies?  I just dont think I could handle that red pill. 2 jets DID knock down 3 buildings damnit!

weburke's picture

The plus side is that america is the new rome, and you live there.  If you have a beef about ownership, why bother with that? Notice in 1492 columbus claimed the us. First dibs and all that. Look around, it aint so bad. George bush said, the constitution was just a piece of paper, I did choke on that one, but I already knew the score. santa, easter bunny, and so many more, oh well, growing up seems like the wrong term, but I think it means, over time, just seeing things as they are.  Sorry I started this above, but last night zero h. had an article about doomsday and it wierded me out. Ill shake it off,      https://www.youtube.com/watch?v=yR8FvDDhBv0

V in PA's picture

+1 more for the ALL CAPS RANT, and the selective BOLD print. Well done.

DutchR's picture

MDB is even better after watching jim cramer in a meltdown: www.youtube.com/watch?v=SWksEJQEYVU

eatthebanksters's picture

Same as the 2008 crisis...they don't give a shit about the little people, all they care about is their rich banker buddies. Haven't you figured that out yet dipshit?

moonstears's picture

They gave you Affordable Health Care, they're working on fixing it all, baby, fret not! (yes...sarc)

Dr. Richard Head's picture

The hatch is a Corzine as "Retail client funds continue to be segregated in accordance with FCA rules."  Segregated into someone else's hands they mean. 

MillionDollarBonus_'s picture

This is bullshit!! There's fucking no way that traders should have to take losses like this just because some fucking moron at the SNB decides to abandon their comittments. What the hell is this world coming to!?? It's fucking not fair. WHAT IS THE GOVERNMENT DOING ABOUT IT?

cnmcdee's picture

They don't have to do shit my friend.  So the SNB elephant just squished a million fleas when it brushed up against a tree.

You gotta be a smarter tick..

I traded Forex for three years and become quite successful at it but on average it has a 90% failure rate, and in the end blew my account up several times.  In the end if your account has 100:1 leverage you only every put up at most 5% of your equity on the table - sorta like having a big pile of chips and only playing 1 or 2$ at a time.

It's just the way it goes.

SWRichmond's picture

The purpose of the little guy is to be looted.  Period.

Ghordius's picture

"In the end if your account has 100:1 leverage you only every put up at most 5% of your equity on the table "

yes. but the rest, most of the 95% you are risking is, strictly speaking in our banking environment, OPM. Other People's Money

oh, that means mine and that of the other people reading here. and that's too just the way it goes

Antifaschistische's picture

so Ghordius.....ask this, where are the lenders who lost billions yesterday?  the investors who put up the 99% of the 100/1 trade?   Why aren't they in the news?

Ghordius's picture

investors? why "investors"? as far as I know, they are banks. megabanks, usually. perhaps we'll hear about at the next quarterly results

css1971's picture

It's made up money. Only the banks ever owned it.

Okienomics's picture

This is the first time in years I've seen MDB post twice in the same thread (s/he exhibits remarkable self-discilpline by never responding to zealous attackers) AND posting a thread in ALL CAPS.  Thank you MBD for brining a smile to my face more times than I can count.