FXCM, a leading online provider of Forex trading and services has received a $300 million cash infusion from Leucadia National Corporation, owner of a New York-based investment bank Jefferies Group. The two-year, $300 million senior secured loan with a 10 percent coupon will allow FXCM, to “continue normal operations”.
The immediate reaction at FXCM, the largest U.S. retail foreign-exchange broker, upon receiving the news last Thursday that the Swiss National Bank had removed the cap it had placed in 2011 to prevent the Swiss franc from rising too high against the euro was to inform its clients that the company was actively seeking possible alternatives for an influx of funds so as to avoid being in breach of regulatory capital requirements.
Not all brokers were able to find a lucrative bailout, however. Alpari (UK) Ltd, upon hearing the SNB announcement, immediately reported that it was declaring insolvency but has since backtracked and is looking into ways to stay afloat or enter into a sale.
Their most recent announcement states as follows: “The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity. Retail client funds continue to be segregated in accordance with FCA rules. For the avoidance of any doubt and notwithstanding previous announcements by the company, Alpari (UK) Limited has not entered a formal insolvency process. The board of directors is urgently considering all options including a sale and is liaising closely with the FCA. We hope to make a further announcement shortly.”
Another victim of the SNB bombshell is New Zealand foreign exchange dealer Global Brokers NZ Ltd which closed its doors immediately due to hefty losses. The brokerage, trading as Excel Markets, placed a notice on its website saying it had “sustained a total loss of capital and no longer met regulatory capital requirements…the huge moves in the Swiss franc had led to losses for clients that exceeded their account equity.”
Many Brokers Remain on High Ground
Many brokers, however, seem to be holding their own despite the SNB decision. AvaTrade contacted its client base with the following: “AvaTrade is pleased to confirm that yesterday’s SNB statement and CHF volatility had no material effect on the Company. Ava’s financial position remains strong. Our robust risk management systems enabled us to effectively manage the Company’s exposure to the Swiss Franc.”
According to their latest press release, ActivTrades took measures back in November 2014 in anticipation of the possibility of such events. They decided at the time to “increase the margin required on our CHF pairs by a multiple of 16 and thanks to this measure we were able to protect its clients by substantially limiting their losses and… protecting the interests of the company as a whole.”
By increasing their margin requirements on CHF to 5% back in September, Gain Capital was able to show no material adverse financial impact. In their latest announcement, they stated that in fact they were able to generate profits on the Swiss move. The company’s CEO Glenn Stevens posted that “Our strong risk-management framework allowed us to generate a profit on one of the most turbulent days for the global currency markets in recent years.”
Markets.com, another Cyprus based broker, reported “business as usual” and said that it actually made profits from the SNB turnaround. In their press release, they stated that the extreme volatility “didn’t impact the firm’s strong financial position. Thanks to the company’s robust risk management policies, the Company enjoyed a profitable trading day in yesterday’s session and didn’t have any negative impact from the Swiss Franc’s extreme volatility.”
A leading European brokerage house, XTB, posted the following announcement: We’re “ happy to say that at XTB we’ve not been affected. In fact, it has been business as usual for us. Some have called us lucky – but 2 months ago our trading team made the decision to reduce our leverage limit on CHF pairs to 1:50 (2%), so our exposure to the movement has been effectively risk managed.”
Many other brokers seem to have weathered the storm without much damage so far. CityIndex sent out a statement to its customers that read: “We would like to take the opportunity to reassure our clients and confirm to the market that City Index has not suffered any material impact as a result of yesterday’s volatility and our financial position has not been affected. It is very much business as usual for City Index and our global client base.”
OctaFX, located in Saint Vincent and the Grenadines, assured its clients that it “remains fully reliable and solvent despite the recent events and that all trades are performed according to the operational company standards.”
And in a letter sent out to its clients, HotForex, a Cyprus based Forex broker, said the following: “We would like to reassure you that HotForex is operating as normal, and was not affected in any material way. Our strict Risk Management procedures minimized the impact of this event. Furthermore, we have stayed true to our motto of Honesty, Openness and Transparency. As testament to our commitment to fairness, all negative account balances have been reset to zero and any clients that bought CHF have been paid in”.
Only time will tell if these optimistic assessments will prove true in the short run. Or will we continue to feel the fallout from the Swiss National Bank shockwave in the days to come.