“Mum and Pop” traders are getting a bailout.
Currency broker FXCM, which had to be rescued by Jefferies following the chaos that ensued in currency markets after the Swiss National Bank’s decision to remove its peg against the euro, announced on Wednesday that 90% of its clients that incurred negative balances will be forgiven.
On the morning of January 15, the SNB unexpectedly said it would no longer peg the franc at 1.20 against the euro. Following this announcement, the franc rallied in a huge way, going 1.20 against the euro to as low as 0.83 in just a matter of minutes.
In its statement on Wednesday, FXCM explains that chaos by saying, “The SNB announcement, extreme price movements and the resulting lack of liquidity were exceptional and unprecedented events causing many market participants to incur trading losses. These events were unforeseen and beyond the control of FXCM.”
FXCM’s statement, which says it will forgive a “majority” of its clients has a rub: these clients represent about 40% of the debit balances owed to the company.
In the last paragraph of FXCM’s statement, the company says:
FXCM will also notify certain clients (such as institutional, high net worth, and experienced traders who generally maintain higher account balances) requesting payment of negative balances, pursuant to the terms of the FXCM master trading agreements. This group represents approximately 10% of clients who incurred negative balances which comprises over 60% of the total debit balances owed.
So while 90% of the company’s clients are getting forgiven, this represents less than half the money owed to FXCM. Good news, but only some of the way around: the big guys still have to pay.