Swiss franc shock shuts some FX brokers; regulators move in

정석_수학 2015. 1. 17. 19:12

http://finance.yahoo.com/news/swiss-franc-shock-shuts-fx-005319992.html

By Anirban Nag and Steve Slater

LONDON (Reuters) - 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 (BARC.L) 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 (FXCM.N), 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 (LUK.N), 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.

"This has resulted in the majority of clients sustaining losses which 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 that it has entered into insolvency."

Online trading services provider London Capital Group Holding (LCG.L) put its franc-related losses at up to 1.7 million pounds ($2.6 million).

The franc surged as much as 40 percent to a high of 0.8500 per euro (EURCHF=EBS) after the Swiss central bank lifted its 1.20 per euro cap.

New Zealand foreign exchange dealer Global Brokers NZ Ltd closed due to hefty losses. The national Financial Market Authority said it would "be seeking assurances that the client funds have been protected and segregated".

The Hong Kong Monetary Authority said it was "following up with the banks on their practice in this regard ... to understand the implication, if any, but we would not comment on the situation of individual banks."

Britain's Financial Conduct Authority said it was talking to Alpari, while the U.S. National Futures Association said it was monitoring the foreign exchange brokers it oversees.

BROKER WOES, REGULATORY POWERS

FXCM Inc (FXCM.N) shares fell nearly 90 percent in pre-market hours before being halted for the regular trading session on the New York Stock Exchange. In after-hours action, it resumed trading (FXCM.K), rebounding from the premarket losses, but still down 70 percent from Thursday's close.

Top executives from FXCM went through company books until at least 5 a.m. EST (1000 GMT) on Friday, according to a source close to FXCM. Regulators were in FXCM's offices in downtown Manhattan on Friday, according to two sources.

A spokesperson for the U.S. National Futures Association said it was in "constant" contact with FXCM, and had been "watching the volatility" as a result of the Swiss central bank move. NFA rules allow a leverage ratio of 50 to 1 on transactions in the Swiss franc, which means even a 2 percent move can wipe out a position.

Not all brokerages suffered. GAIN Capital Holding Inc (GCAP.N) said on Friday it generated a profit on Thursday from trading, and that its strong financial position will allow it to win market share. Its shares closed up 2.9 percent at $8.52.

Canada-based foreign exchange broker OANDA said in a statement it "will pardon our clients' negative account balances associated with this market event" and would not "re-quote or amend" clients' trades on the Swiss currency.

But Denmark's Saxo Bank, one of the biggest players in retail foreign exchange trading, said late on Thursday it would potentially set different rates for its clients' transactions.

Saxo Bank chief financial officer Steen Blaafalk told Reuters some clients had suffered losses but the bank was well capitalised. Retail investors, some of whom face huge losses, protested when Saxo said it might set different rates.

Lawyers said this could be contested.

"I think there will be litigation and disputes over automatic close-outs," said a financial services lawyer.

Hong Kong media reported clients of HSBC Holdings (HSBA.L) were able to buy the Swiss currency at below-market rates for several hours through its online system, making several thousand dollars in profits on the trades.

HSBC said online foreign exchange trading for the Swiss franc "is currently operating normally and we will investigate reports that customers could trade at old rates initially after the cap was lifted."

http://finance.yahoo.com/news/asia-fx-brokers-hit-hard-084132026.html

Asia FX brokers hit hard by Swiss franc shock, regulators probe

HONG KONG (Reuters) - Some retail foreign exchange brokers and trading houses in Asia have been hit by massive losses from Swiss National Bank's (SNB) sudden move to abandon a cap on its currency that led to heavy volatility, with one even being forced to close.

Regulators in New Zealand and Hong Kong said on Friday they were looking into the situation of brokers and banks trading the Swiss franc, following reports of the volatility and losses.

The Swiss currency surged as much as 30 percent to a high of 0.8500 franc per euro after the SNB suddenly ditched its commitment to cap the franc at 1.20 per euro on Thursday.

The surprise move caused New Zealand foreign exchange dealer Global Brokers NZ Ltd to close due to hefty losses incurred from the volatility.

New Zealand's Financial Market Authority (FMA) said it would "be seeking assurances that the client funds have been protected and segregated" after Global Brokers said it sustained a total loss of operating capital.

BROKER WOES

FXCM Inc, one of the biggest platforms catering to online and retail traders of currencies, said it may be in breach of some regulatory capital requirements after its clients suffered $225 million of losses.

"We are following up with the banks on their practice in this regard including the relevant governing terms and conditions to understand the implication, if any, but we would not comment on the situation of individual banks," the Hong Kong Monetary Authority (HKMA) said in an emailed statement.

Foreign exchange broker OANDA said in a statement it "will pardon our clients' negative account balances associated with this market event" and vowed not to "re-quote or amend" clients' trades on the Swiss currency.

"Today's events are sure to trigger broker consolidation, which as an extremely well capitalized broker, interests us greatly," OANDA added.

OANDA's move contrasted to Denmark's Saxo Bank, one of the biggest players in retail foreign exchange trading, which said late on Thursday it would potentially set different rates for its clients' transactions.

Meanwhile, Hong Kong media reported clients of HSBC Holdings were able to buy the Swiss currency at below-market rates for several hours through its online system, making several thousand dollars in profits on the trades.

http://www.wsj.com/articles/swiss-franc-move-cripples-currency-brokers-1421371654

Surge of Swiss Franc Triggers Hundreds of Millions in Losses

Brokerage FXCM Gets Rescue Package; Deutsche Bank and Citigroup Suffer Big Hits

By IRA IOSEBASHVILI, ANDREW ACKERMAN and ALEXANDRA WEXLER

Updated Jan. 16, 2015 7:02 p.m. ET

178 COMMENTS

Banks, brokers and individual investors were left with hundreds of millions of dollars in losses a day after an unexpected surge in the Swiss franc sent shock waves through markets.

FXCM Inc., a major U.S. retail foreign-exchange broker, emerged as the biggest victim so far and had to be rescued by an emergency $300 million lifeline from investment firm Leucadia National Corp.

Shares of FXCM, one of the largest retail currency brokers in the world, were suspended on the New York Stock Exchange on Friday after the company said client losses on Swiss franc trades threatened to put it in violation of regulatory capital rules.

The two-year loan, with an initial interest rate of 10%, is “designed to maintain FXCM’s financial strength and allow it to prosper going forward,” said Leucadia Chief Executive Richard Handler .

FXCM didn’t respond to a request for comment.

Other firms were hit when the Swiss currency jumped by nearly 30% against the euro and 18% against the dollar in the minutes following the Swiss National Bank ’s decision to stop reining in the value of the franc against the euro.

Citigroup Inc. and Deutsche Bank AG will each lose about $150 million on the franc’s appreciation, said people familiar with the firms. Goldman Sachs Group Inc. said Friday that the franc’s move will be immaterial to its earnings. Losses at Barclays PLC will be in the tens of millions of dollars, people familiar with the bank said.

Among hedge funds suffering losses: Discovery Capital Management LLC, a South Norwalk, Conn., firm that manages $14.7 billion, and Comac Capital LLP, which oversees $1.2 billion in London. Comac was down roughly 8%, according to a person familiar with the firm.

Losses could be reversed, but the setbacks are the latest for Discovery and Comac. Comac has been roughly flat the past two years, while Discovery ended last year down more than 3% in its flagship fund, after largely recovering from a double-digit-percentage loss early in 2014, according to people familiar with the firms. Bloomberg News earlier reported Comac’s loss.

Meanwhile, staff for members of the Financial Stability Oversight Council, a group of senior U.S. regulators, spoke by phone Friday to discuss the market’s reaction and the impact on specific financial institutions, according to a person familiar with the call. The discussion didn’t suggest there was an immediate threat to the financial system, this person said.

FXCM was founded in 1999 as one of the first currency brokerage firms to serve retail customers. In recent years, the company has expanded by acquiring weaker rivals, as a yearslong period of modest swings in foreign-exchange markets led to reduced trading and industry consolidation.

At the center of this week’s turmoil, analysts said, was the use by FXCM clients of borrowed money, or leverage. FXCM kept lower margin requirements, or the amount held as collateral for a loan, than its competitors, analysts said, a practice that enabled traders to boost returns by using borrowed money.

For years, foreign-exchange brokerages that catered to mom-and-pop investors operated outside significant oversight and were magnets for potential fraud. That all changed with the 2010 Dodd-Frank financial-overhaul law, which for the first time gave the Commodity Futures Trading Commission regulatory authority over the brokerages.

FXCM was among several firms that fought CFTC efforts to limit leverage at 10 to 1, saying in a March 2010 letter the proposal would have a “devastating impact on the retail [foreign-exchange] industry” and “drive it largely overseas.” The letter was signed by FXCM Chief Executive Drew Niv and eight other brokerage CEOs. The limit eventually was set at 50 to 1, meaning an investor could borrow $50 for every dollar put in.

On Thursday, a unit of Chicago-based exchange and clearinghouse operator CME Group Inc. tripled margin requirements for traders using futures tied to the Swiss franc, according to an advisory notice it sent to clearing members and risk managers.

Rick Smallwood, 43 years old, a technology consultant living in Belize, began trading in Swiss francs last summer at FXCM. He said he held a stop-loss order that aimed to benefit from the franc’s depreciation but would cap his losses if the franc appreciated beyond 0.97 francs per dollar. A stop-loss order is placed with a broker to sell a security when it reaches a certain price. The franc traded Wednesday at 1.02 per dollar.

News of the Swiss National Bank’s decision broke early Thursday morning in Belize. By the time Mr. Smallwood had finished his morning coffee, the franc had soared past his stop-loss order, exposing him to losses. FXCM sold off his position, a dollar amount he puts in the five figures, at 0.88 francs on the dollar.

Mr. Smallwood, who doesn’t use any leverage on his account, typically limits his positions to 1% of his total assets. He said he lost close to 5% of his account on the franc trade.

Mr. Smallwood, who said he is shifting his assets around to other brokers and other markets, blamed the problems at FXCM in part on other traders who use borrowed money in a bid to bolster returns.

“A lot of currency brokers are becoming insolvent because they’re letting people lever up so much,” he said. “There are people who trade responsibly that are exposed to more risk.”

On Friday, both the dollar and euro gained about 2% against the franc, after ending Thursday down 21% and 23%, respectively.

FXCM went public on Dec. 3, 2010, raising $211 million at $14 a share. But FXCM’s shares performed poorly. The stock fetched $12.63 at Thursday’s close and was down about 70% in after-hours trading Friday, at $3.75.

Matthew Wilhelm, principal at Lucid Markets Trading Ltd., an electronic-trading firm, sold 481,228 shares of FXCM in November, according to SEC filings. In June 2012, FXCM purchased a 50% controlling stake in Lucid Markets for $176 million, and Mr. Wilhelm received 5,284,045 shares as part of that deal, according to SEC filings. He didn’t return calls seeking comment.

Another big stockholder of FXCM has also sold large amounts of shares in recent months. Michael Romersa, one of the firm’s founding partners and a former executive, sold 236,193 shares from Dec. 19 to Jan. 9, according to SEC filings.

“I wanted the cash, so I sold some,” Mr. Romersa said. “I’m 68 years old. What am I going to wait for, until I’m 78?”

http://finance.yahoo.com/news/fx-broker-fxcm-gets-rescue-005319552.html

FX broker FXCM gets rescue from Jefferies parent Leucadia

NEW YORK (Reuters) - Retail foreign exchange broker FXCM Inc (FXCM.N), reeling after customers lost more than $200 million from the surging Swiss franc, will get a $300 million loan from Leucadia National Corp to keep operating, the companies said in a statement Friday.

Large global banks and retail brokerages were hit hard by the Swiss National Bank's sudden move Thursday to scrap its three-year-old cap on the value of the Swiss franc against the euro (EURCHF=EBS).

FXCM said Thursday that client losses may have left the brokerage with too little capital.

Leucadia (LUK.N), the parent of investment bank Jefferies, which advised on the deal, will invest $300 million in a two-year senior secured term loan with an initial coupon of 10 percent. The deal, which was expected to close Friday afternoon, also gives Leucadia an undisclosed percentage of a potential sale of FXCM.

"Leucadia`s support and this financing are by far the best alternative for FXCM, our customers, our shareholders, and all other relevant constituencies," said Drew Niv, FXCM chief executive officer.

Top executives from FXCM went through company books until at least 5 a.m. on Friday, according to a source close to FXCM. Regulators were in FXCM's offices in downtown Manhattan, according to two sources.

FXCM needed to act quickly. In its Thursday statement, the brokerage said client losses would result in a shortfall to the company of about $225 million and that it "may be in breach of some regulatory capital requirements."

"The key factor here is time, as regulators tend to be impatient once capital requirements are breached," analysts at Credit Suisse wrote in a Friday note.

In its statement, Richard Handler, Leucadia's CEO, and Brian Friedman, the firm's president, said they had worked with Jefferies and FXCM over the "past approximately 36 hours" to come to a deal. UBS acted as financial advisor to FXCM.

FXCM shares lost nearly 90 percent in premarket activity on Friday to $1.49 a share, and did not trade during the regular New York Stock Exchange trading session. The shares resumed trading in the after-hours session, recovering a bit from the premarket losses, but the stock (FXCM.K) was still down 70 percent to $3.81 a share from Thursday's close of $12.63.

Those who sold the stock in premarket action Friday morning will take big losses.

"The fact is if you sold at $1.49 in premarket that’s a decision you made and you’re out of it," said Ken Polcari, director of the NYSE floor division at O’Neil Securities in New York.

Shares of Leucadia were halted during the trading day at $21.84 a share. They lost 0.8 percent to fall to $21.04 after resuming trading in after-hours action.

In Washington, a spokeswoman for the U.S. Commodity Futures Trading Commission said earlier that the agency was reviewing the company's situation but declined to give details.

FXCM and other brokerages were hit hard after the Swiss National Bank surprised markets by abandoning its cap against the euro. That caused the euro to suffer its biggest-ever one-day fall against the franc, dropping 18 percent for the session and losing some 30 percent on an intraday basis.

'BLACK SWAN' EVENT

In a note to clients, Sandler O'Neill analyst Richard Repetto wrote "we've been informed that FXCM offered clients leverage of 50x (often the standard in the U.K.) for EUR/CHF (euro-Swiss franc) trades."

"We believe this high leverage combined with the unique (black swan-like) event of the floating of the Swiss franc contributed to the steep customer losses at FXCM," he wrote.

Black swans are events seen as improbable and come as a major surprise to the market. Such events happen much more often than most market participants expect.

Shares of other brokers with retail foreign exchange businesses were mixed on Friday.

Interactive Brokers Group Inc (IBKR.O) lost 0.6 percent to close at $28.09 a share. The company said customers lost $120 million beyond their collateral, equal to less than 2.5 percent of the company's net worth.

GAIN Capital Holding Inc (GCAP.N) dropped as low as $7.75 in early trading but closed up 2.9 percent to $8.52, after the company said it generated a profit on Thursday from trading.

http://finance.yahoo.com/news/hkma-following-banks-swiss-franc-054245073.html

HKMA "following up" with banks on Swiss franc trading

HONG KONG, Jan 16 (Reuters) - Hong Kong's de facto central bank said on Friday it was looking into the practices of banks and foreign exchange brokers of their trading of Swiss francs after Switzerland's unexpected move to abandon its currency cap.

The Swiss currency surged as much as 30 percent to a high of 0.8500 franc per euro EURCHF=EBS after the Swiss National Bank (SNB) suddenly ditched its commitment to keep its franc above 1.20 per euro.