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UPDATE - Swiss franc chaos claims FX brokerage scalps; banks hit

The Swiss National Bank's decision to remove its currency peg to the euro is crushing foreign exchange brokers around the globe.


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The Swiss National Bank's (SNB) decision to remove its currency peg to the euro is crushing foreign exchange brokers around the globe. 

London-based broker Alpari went into insolvency hours after New Zealand's Global Brokers, trading as Excel Markets, closed its doors.

Elsewhere, shares in the biggest currency broker in the US, FXCM, have been suspended after the firm took a US$225mln hit.

The SNB stunned markets on Thursday by scrapping its pledge to cap the value of the franc at 1.20 per euro. That sent the franc soaring over 40% against the euro at one point.

Meanwhile, most major banks are likely to have lost money from the unprecedented surge in the value of the franc.

Barclays (LON:BARC) has reportedly lost tens of millions of dollars from the volatile trading session.

Retail broker Alpari, the main sponsor of West Ham United football club, was unable to cover huge client losses on the wild currency swings.

"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," Alpari said in a statement.

“Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm today that it has entered into insolvency.”

The firm’s UK's chief market analyst, James Hughes, yesterday branded the SNB's shock move as "horribly irresponsible".

Alpari was set up in 1998, and the UK arm opened in 2004.

UK regulator the Financial Conduct Authority confirmed it is in talks with Alpari following the collapse.

Currency desks from New York to Hong Kong have taken a beating.

The biggest currency broker in the US, FXCM, took a $225mln hit.

The blow has put the firm potentially in breach of its regulatory capital requirements and it is "actively discussing" alternatives to boost capital levels.

FXCM shares have been suspended.

There was worse for New Zealand-based broker Global Markets, trading as Excel Markets, which failed to dodge the bullet.

The firm said it had sustained the total loss of its operating capital following the SNB announcement, and would not be able to resume business.

Spread betting firm IG Group (LON:IGG) was also caught on the hop by the move.

The company said many clients were able to close out their Swiss franc positions with IG more swiftly than IG managed to close out its hedged position on the currency in the foreign exchange markets.

IG Group said the losses incurred from Thursday morning’s volatility will partly depend on how successful it is in recovering client debts, but it estimated that the damage would not exceed £30mln.

Another UK spread betting operator, London Capital Group, said the impact of the currency moves on its balance sheet would “not exceed £1.7mln”, an amount it said was not material.

CMC Markets chief executive, Peter Cruddas, said it was business as usual for his firm.

"We sustained some losses; however, the overall impact including possible bad debts has not materially impacted the group."

Quick facts: IG Group

Price: 610 GBX

Market: LSE
Market Cap: £2.25 billion

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