Swiss Franc Fallout Leaves Tsunami-like Trail of Destruction in its Wake

20 January, 2015

The global forex markets were sent into a tailspin, on Thursday 15th January, when the Swiss central bank, in a shock move, uncoupled its currency trading ceiling against the euro. It was a move, which had caught the financial world completely off guard and, therefore, leaving many initiations and people nursing their losses and with Alpari (UK) Ltd filing for bankruptcy.

The move, by the Swiss financial authorities, has left a trail of destruction of biblical, Tsunami-like proportions, in financial trading world, in one of the most dramatically, damaging currency swings of the new century and hitting forex brokers like a towering, moving wall of water; with Alpari (UK) Ltd, filing for bankruptcy.

The UK’s Barclays bank was also left with a financial black hole, running into the tens of millions of dollars last Thursday; due to the volatile swings on the Swiss franc, shortly after the Swiss announced its abandonment of the euro cap.

According to the Financial Times, banking sources have suggested that many of the major banks were likely to have suffered losses, as a result of the “unprecedented” surge in the value of the Swiss franc, once the Swiss Central Bank abandoned its cap on the euro.

The Financial Times also states that many banks lost money, because the Swiss franc moved upwards so quickly that they could not immediately fulfil their client’s orders. Barclay’s, however, have stated that it would honour all trades made in Swiss franc spot trading.

By the end of the trading day, last Thursday, many banks had been left with hefty losses on their books and Alpari (UK) Ltd, filed for insolvency on the Friday.

Alpari’s (UK) Ltd, website states that “Special Administrators” have been appointed, as of January 19th 2015 and that strenuous efforts to find a buyer had been unsuccessful and those efforts to find a potential buyer are now ongoing. Currently it is not known how many jobs are likely to be lost at Alpari, (UK) Ltd. KPMG have been hired as the administrators.

Alpari (UK) Ltd currently employs 170 people in its London offices and it had approximately $100,000,000 in client money, which under FCA rules, had been segregated.

Finland’s Saxo bank was also left heavily exposed, as a result of many of its customers being left unable to pay their debts. However, the bank has stated that it would fulfil all of its capital requirements. The group had, from September last year, doubled its margin requirements to 8% thus effectively reducing the amount of leverage to its clients by about 12.5 times.

The tsunami-like trail of destruction, left in the wake of the surprise uncoupling of the Swiss franc from the dollar ceiling, highlights the just how much this largely, unregulated market leaves punters exposed to sudden, “black swan” moments, where customers are offered large amounts of leverage to lure people into forex trading, with the City of London being the venue of choice for many of these brokers, as London is the world’s main hub for currency trading.

Oanda and IG Group have also not escaped unscathed – they too suffered losses, with New Zealand’s Global Brokers being forced to close down.

The FCA is currently conducting a review of the forex trading sector and its final conclusion and recommendations are still under wraps. It examined 40 banks, brokers and asset managers last year. Its findings, thus far, however, reveal that firms are still failing to obtain the best results on client trades, thus leaving millions of clients out of pocket.

As to what possible new rules and regulations could come into play, as a result of the review, so far remains unclear. In a paper, published last year, the French financial authority calculated that up to 85% of customers lost money through retail-forex trading.

In a further fallout, as a result of the Swiss franc being unpegged from the euro cap, the BBC reports that many thousands of people in Central and Eastern Europe have seen the costs of their mortgages spiral up northward as the Swiss franc rises: with Polish house owners arguably coming off the as the worst affected, because for many years now, the Polish banks had been advising their customers to take out mortgage loans in a foreign currency, with the favourite currency of choice being the Swiss franc.

This was due to the fact that the interest rate was much lower than the Polish zloty and it was expected that it would stay that way for a long time to come. Many Hungarians, Croats and Austrians had taken out Swiss franc-denominated loans.

by Victor Romain

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