Here we go.
New Zealand-based Excel Markets has had to shut down after losses sustained in the wild currency movements triggered overnight by the Swiss National Bank. It has run out of operating capital and won’t be trading any more.
And in the US, listed online currency trading outfit FXCM said it had experienced client losses of $US225 million and “may be in breach of some regulatory capital requirements” and was “discussing the matter with… regulators”.
“This is going to spook the market big time,” an investment director at a major Australian bank told Business Insider.
The franc moved as much as 40% against the Euro after the SNB announcement, seizing up the market with traders reportedly unable to close positions for hours. As liquidity evaporated in the Euro-franc market, banks and traders searched for liquidity elsewhere, which spread the turmoil and has led to a wider distribution of losses to clients than just those in Euro-franc positions.
Global brokerage Invast has also sent a note to clients this afternoon saying it will be suspending trading in the Swiss franc temporarily and reviewing all recent trades in the currency. “As a result of this review, adjustments to client accounts may be required,” Invast said. “Please understand that these adjustments may be either positive or negative in their impact on client balances. We will endeavour to complete the process as quickly as possible.”
Only Swiss franc trades were affected by the suspension, Invast said.
Leading online forex trading platform OANDA said in a note to customers today that “despite suffering losses and vanishing liquidity in the institutional hedging market” it had not amended any client trades, and that it was “business as usual at OANDA”.
According to Bloomberg, HSBC is investigating reports that some customers made significant profits because the bank’s trading platform was hugely underquoting the franc, because it failed to keep up with its soaring value.
Excel Markets has a statement on its website saying client funds are safe but that it can no longer meet minimum capitalisation requirements and has to stop operating.
“Both our primary and backup liquidity providers became unresponsive or illiquid for hours after the event. The majority of clients in a franc position were on the losing side and sustained losses amounting to far greater than their account equity. When a client cannot cover their losses it is passed onto us,” according to the statement from director David Johnson.
A note at the end of the statement adds:
We are currently experiencing hundreds of withdrawal requests. A small percentage of clients have reported errors during the automated withdrawal request process. If you experience a system error please do not panic. Although we are not offering trading services our staff is fully operational and we will not disappear on you.
The fallout is being seen elsewhere too.
Denmark’s Saxo Bank has also warned it will be changing its charges for orders placed in the turmoil, effectively passing on losses to customers. “Once we are better able to establish the market liquidity, all executed fills will be revisited and amended to more accurate levels,” the bank said. “This may result in a worse execution rate than the originally filled level.”
IG Group, which operates IG Markets and is one of the world’s largest online trading platforms, said it had an exposure of £30 million.