STOCK MARKET WATCH -- Monday, 19 January 2015

[Demeter]

20. Swiss franc shock shuts some FX brokers; regulators move in

http://ca.reuters.com/article/businessNews/idCAKBN0KP1EH20150117

The Swiss franc shock reverberated through currency trading firms around the world on Friday, wiping out many small-scale investors and the brokerages that cater to them and forcing regulators to take a closer look at the sector. Some major banks also lost out when the Swiss National Bank scrapped its three-year-old cap on the franc against the euro EURCHF=EBS without warning on Thursday, including Britain's Barclays which lost "tens of millions" of dollars, an industry source said. Retail broker Alpari UK filed for insolvency on Friday, while New York-listed FXCM Inc, one of the biggest platforms catering to online and retail currency traders, said it looked to be in breach of regulatory capital requirements after its clients suffered $225 million of losses. FXCM had to turn to Leucadia National Corp, the parent of investment bank Jefferies, to quickly broker a $300 million loan that was expected to close Friday afternoon.

In the past 15 years, retail currency trading has grown quickly, attracting individuals staking their own money with long trading hours, low transaction costs and the ability to take on huge risks for a relatively small sum. Retail currency trade makes up nearly 4 percent of global daily spot turnover of nearly $2 trillion, the latest survey from the Bank of International Settlements shows, having grown from almost nothing in the 1990s. This small share means the sector poses limited risk to the financial system but retail brokers are much more vulnerable to big losses than banks. Regulators in New Zealand, Hong Kong, Britain and the United States said they were checking on brokers and banks after reports of volatility and losses.

The move "caused by the SNB's unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity," Alpari, the shirt sponsor of English Premier League soccer club West Ham, said in a statement. Continued...