Soaring franc sinks small brokers after Swiss cut it loose
LONDON: The financial shockwaves from the Swiss franc’s staggering ascent, one of the most acute moves in decades by a major currency, have hit firms around the world, with at least two brokerages going out of business.
Although currency markets were a bit calmer yesterday, with the euro up 2.5 percent at 1.0176 francs, the repercussions of the previous day’s move will probably be felt for some time.
At one point on Thursday, the franc surged about 30 percent against the euro in the minutes after the Swiss National Bank said it was ditching an increasingly expensive policy to limit the export-sapping rise of the currency.
Derek Halpenny, a currency strategist at the Bank of TokyoMitsubishi UFJ, described the move as “unprecedented”.
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 sizeable holdings of euros or dollars against the franc would have suffered heavily.
Alpari, the London brokerage firm that sponsors the shirt of English Premier League football club West Ham United, said it had to close its business.
The firm said most of its clients experienced losses that exceeded their account equity.
“Where a client cannot cover this loss, it is passed on to us… Alpari (UK) Limited… has entered into insolvency.”
The anger in the firm is evident in a note that its market analyst, Craig Erlam, published yesterday before news of the wind-down. Bemoaning the “idiotic actions of the SNB”, Erlam warned of a “longerterm impact on the markets”.
Alpari’s demise follows that of Global Brokers NZ, a small brokerage in New Zealand. Its director, David Johnson, said it could no longer meet the regulatory minimum to continue business.
FXCM, a New York currency broker, has warned it “may be in breach of some regulatory capital requirements” after clients experienced big losses.
The decision by the Swiss central bank to scrap its efforts to prevent the euro from trading below 1.20 francs came amid mounting speculation that the European Central Bank would back a stimulus programme next week to put more euros in circulation, diluting their value. – Sapa-AP