Swiss franc's massive surge claims brokerage firm scalps
The staggering ascent in the Swiss franc, one of the most acute moves in decades by a major currency, has hurt financial firms around the world, with at least two brokerages going out of business.
Though currency markets were a bit calmer Friday, with the euro down 1.1 per cent at 0.9824 francs, the repercussions from the previous day's move are being felt at financial firms from New York to New Zealand via London.
At one point Thursday, the franc surged around 30 per cent against the euro in the minutes after the Swiss National Bank, or SNB, said it was ditching policy that limited the rise of franc. It had adopted the policy in 2011 to keep the franc's rise from hurting the economy's exports.
Derek Halpenny, a currency strategist at Bank of Tokyo-Mitsubishi UFJ, described the currency move as "unprecedented". He's not alone in thinking that.
The scale and speed of the move in what is one of the world's most-traded currencies caught many financial firms unprepared. While holders of Swiss francs gained, those with sizable holdings of euros or dollars against the franc would have suffered heavily.
While big banks can absorb big losses on markets, for some smaller firms, the volatility in the franc proved too much.
Alpari, the London-based brokerage firm that sponsors the shirt of English Premier League football club West Ham United, said it had to shut down its business.
In a statement, the firm said the majority of its clients sustained losses that exceeded their account equity. "Where a client cannot cover this loss, it is passed on to us," it said. "This has forced Alpari (UK) Limited to confirm today that it has entered into insolvency."
The scale of anger within the firm is evident in a note that its market analyst, Craig Erlam, published Friday before news of the wind-down. Bemoaning the "idiotic actions of the SNB", Erlam warned over the "longer -term impact on the markets"
Alpari's demise follows that of Global Brokers NZ, a small currency trading house in New Zealand.
Its director, David Johnson, announced on the website of affiliate Excel Markets, that it could no longer meet the regulatory minimum to continue business.
"News of the impact of this event on companies and traders is just beginning to come to light," he said. "As directors and shareholders, we would like to offer our sincerest apologies for this devastating turn of events."