Foreign currency traders around the world are coming under pressure following the Swiss central banks surprise decision on Thursday to remove the cap on its currency.
FXCM, an online currency trading service listed in New York, said late on Thursday that it might have breached regulatory capital requirements after its clients' losses of $225 million.
The company, one of the biggest foreign exchange trading platforms for individual investors in the United States, blamed the losses on unprecedented volatility in the exchange rate of the euro against the Swiss franc, which has surged more than 20 per cent since the Swiss National Bank removed a 3-year-old cap on the currency’s value.
We are actively discussing alternatives to return our capital to levels prior to Friday’s events and discussing the matter with our regulators, FXCM said in a statement on Thursday.
Separately, in New Zealand, another online foreign exchange broker said it was shutting down.
The dramatic move on the Swiss franc fuelled by the Swiss National Banks unexpected policy reversal of capping the Swiss franc against the euro has resulted in rare volatility and illiquidity, David Johnson, the director of the company Global Brokers NZ, said in a statement posted online on Thursday.
As a result of shouldering clients' heavy trading losses, he said, the company was in breach of its regulatory capital requirement and would be unable to resume business.
News of the impact of this event on companies and traders is just beginning to come to light, Mr. Johnson added in the statement, which was addressed to clients. We would like to offer our sincerest apologies for this devastating turn of events.
Switzerland had effectively capped the value of its currency at 1.20 per euro since 2011, a move targeted to halt the francs rapid appreciation in the middle of a sovereign debt crisis in Europe.
But the euros’ persistent weakness in recent months made continuing with that strategy too risky and expensive, especially with the euro likely to weaken further in the coming weeks if European policymakers push ahead with a new round of stimulus measures, as is widely expected.
The ructions in the foreign exchange markets are likely to continue. Oanda, another large online currency broker, said it was positioned to take advantage of what it predicted would be a shakeout in the industry.
Friday’s events are sure to trigger broker consolidation, which as an extremely well capitalized broker, interests us greatly, the company said in a statement.
