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...

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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."

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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.

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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.
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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.

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

 

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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.

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4 down - more to come...