SNB bombshell has hurt a number of global banks and brokerages. Shortly cleared errors on trading platform notwithstanding, now closure, bankruptcy, and bail-out abounds in what may be the greatest forex industry debacle in years.

Swiss National Bank

SNB bombshell has hurt a number of global banks and brokerages. Shortly cleared errors on trading platform notwithstanding, now closure, bankruptcy, and bail-out abound in what may be the greatest forex industry debacle in years.

 

Bankruptcy and Bail Out

On Friday morning after the SNB bomb exploded, New Zealand FMA-regulated minor forex broker Excel Market announced that they have suffered total loss and has to close shop. As their client's funds are stored in segregated accounts though, it said that clients could apply for funds withdrawals as soon as possible. At that point, there is already a number of brokers announcing significant losses.

Then on late Friday (16/1), the second victim revealed. News that Alpari UK has entered insolvency broke and made clients sweated. However, an announcement in the Alpari RU website tried to calm the storm by stating that Alpari UK insolvency does not affect other Alpari companies. Here is a quote from Alpari RU:

Dear Clients!

On January 15, 2015 the Swiss National Bank unexpectedly removed the upper boundary of CHF against EUR. These measures triggered a sharp rise in CHF and resulted in exceptional volatility on the Forex market in CHF currency pairs. As a result many forex brokers faced financial problems. In particular, on January 16, 2015 Alpari UK announced that it entered into insolvency.

As a result of volatility movements the company cannot any longer meet the capital adequacy requirements of the FCA (UK). In the nearest future external control will be introduced and a program of financial recovery will start.

Please note that Alpari UK is a separate legal entity operating under the Alpari brand and its financial situation does not affect other Alpari companies.

In particular, Alpari Limited (Saint Vincent), Alpari Limited (Belize) and Alpari International Limited (Mauritius), Alpari Ltd. (Bermuda) have recently changed their margin requirements for EURCHF to protect their clients. Due to these measures these companies do not face any financial difficulties and provide their services in full.

Best Regards,
Alpari

The next development saw FXCM is bailed out by financial holding firm Leucadia National, according to CNBC. In order to weather 225 million USD losses and 70% share drop, it said that Leucadia National  National invested $300 million cash in FXCM in exchange for a $300 million senior secured term loan with a two-year term and a 10 percent coupon. If FXCM is sold Leucadia will get a portion of the proceeds. Other brokers that saw losses are IG, Interactive Brokers, LCG, and Swissquote.

 

Broker Test Stress

A report on forex industry done by Citi dated January 2014 mentioned that FXCM, Alpari, and IG are among the ten brokers with biggest global market share, thus makes the ongoing mayhem a test stress on the forex industry as a whole.


GlobalGlobal retail forex broker preferences. Percentage counted as the market share of each.
Source: industry report by Bapi Maitra of CitiFX

 

A forum quickly built up in forexfactory that talks about which broker honored both Stop Loss and Profits made by clients at Black Thursday. The discussions revealed just how many traders suffered from slippages and the uncertainty surrounding withdrawals from profits that the lucky half gained.

There are approximately two main problems here that are intensified by SNB bombshell:

 

1. Platform and Liquidity Failure

Many brokers drew quotes from major bank's platforms that crashed after the SNB announcement. Deutsche Banks' Autobahn system, for instance, was shut down for some time, as well as others. As quotes froze, stop loss became dysfunctional and profit targets broke down due to the price gaps between quotes before the platform froze and after. Furthermore, liquidity from major banks is said to be practically nonexistent afterward, which makes any maneuver to counter losses became impossible.

 

2. Leverages

It means that brokers lent funds to traders, in which traders simply have to provide a small amount of money in order to has the power of hundreds of times of that. Thus, in incidents like this when many traders suffered losses, traders only have to bear a small amount of it, while the brokers have to bear a much bigger burden (particularly when hedging failed as well). This is why the US and Japan regulator capped leverage at 1:50 and 1:25 maximum, a move that was emulated by Russia in December 2014.

 

Business As Usual

Still, not all forex brokers failed. As soon as the bomb exploded, OANDA issued statement that they ...did not re-quote or amend any CHF cross client trades., as well as ... forgiving all negative client balances that were caused when clients could not close out their positions fast enough (where permitted by regulations). Other brokers are less generous, but also announced business as usual statement despite CHF pairs being temporarily closed in some. Here is a list of some forex brokers that have managed to pass the storm:

  1. AAAFX (ZuluTrade)
  2. AvaTrade
  3. Dukascopy
  4. EasyForex
  5. eToro
  6. Exness
  7. ForexBroker.Inc
  8. FXPrimus
  9. FXDD Global
  10. FXOpen
  11. FXPro
  12. FXTM
  13. Gain Capital (Forex.com)
  14. HotForex
  15. HY Markets
  16. IC Markets
  17. Iron FX
  18. OANDA
  19. OctaFX
  20. ORBEX
  21. Pepperstone
  22. Plus500
  23. RoboForex
  24. Saxobank
  25. ThinkForex
  26. TradeNext
  27. Tradeview Markets
  28. Varengold
  29. XM
  30. And many others.

Some of the aforementioned brokers contributed their survival to solid risk management and solvency. While several other brokers have anticipated SNB move by increasing margin requirement for CHF pairs months ago and therefore took a smaller hit and are able to proudly say that they are protected from disaster, including ActivTrades, Dukascopy, and Gain Capital (Forex.com).

The aftermath of Black Thursday has not yet ended. FXCM fate is still uncertain, and several traders have reported difficulties in withdrawal from other brokers as well. In the next few days, we will see which broker stands strong despite the storm and which broker failed.

Did your broker survive? Tell your story below.

 

Updates

Monday, January 19th, 2015

  • Alpari UK canceled insolvency statement and now is looking for buyer. But Alpari Japan that is a subsidiary of Alpari UK has instructed clients to withdraw their funds as soon as possible from segregated accounts. Alpari Japan has closed operations and received notice from Japan regulator.
  • DMA-based forex broker Advanced Markets and UK-regulated broker ETX Capital has released statement that they are unaffected and business goes on as usual.
  • Online payment system Skrill (Moneybookers) halted withdrawals from several forex broker's accounts.
  • CITI, one of the world's biggest bank dealers as well as forex trader has announced that losses reached more than 150 million USD.
  • Leading financial market authorities has asked forex brokers under its authority to evaluate and report the impact of the Swiss Bomb on their balance, including UK FCA, Cyprus CySEC, New Zealand FMA, and Hong Kong regulator.
  • Several forex brokers recorded profits amid volatile market following SNB decision, and are looking for other brokers to be bought in an effort to expand their market. But acquisition news at this point is still mere rumors.
  • One more New Zealand-based broker fell. Global Brokers NZ announced bankruptcy in which they are no longer able to fulfill New Zealand FMA's minimum capital requirement and have to close shop. This is the second victim after Excel Markets.

 

Wednesday, January 21st, 2015

  • Alpari UK has formally entered bankruptcy processing under UK FCA observation. Up to today, there are no buyers yet and so FCA put it under Special Administration Regime (SAR). For the time being, Alpari UK is under audit by three administrators from KPMG who are looking to return client's funds from segregated accounts as soon as possible. Meanwhile, Japan FSA has confirmed that Alpari Japan as a subsidiary of Alpari UK has gone into administration, and the client's funds will be returned in full.
  • Per January 20th, 2015, Skrill (Moneybookers) has restarted withdrawal proceedings from forex brokers' accounts.
  • Forex brokers' policies in regard to negative balances that came from Swiss shock differs. Gain Capital (Forex.com) and FXCM reportedly sent notices for clients to 'fulfill their responsibilities'. While Dukascopy in accord with OANDA, decided to erase the client's negative balances; and MFX Broker went as far as preparing compensations for all clients that suffered losses in CHF pairs due to this incident.
  • European XTB Broker reported 17.4 million USD in profit post-SNB Bomb thanks to conservative leverages and implementation of special risk strategy since a few months prior.
  • FBS Broker, Instaforex, and Tickmill stated that they are unaffected and business go on as usual.