Following Thursday’s sudden and explosive rise in the value of the Swiss Franc against other currencies, there has been mounting concern over the impact this move will have had upon the balance sheets and regulatory positions of Forex brokerages, as Alpari (UK) files for bankruptcy and a slew of other Forex brokerages release statements.
Following the announcement yesterday by the Swiss National Bank that it would abandon its effective cap on the value of the Swiss Franc, it became effectively impossible for several minutes to enter or exit any CHF trade, even for professional dealers. All retail Forex brokerages suspended trading in the CHF. When the CHF came back online, it had shifted in value by approximately 14%, slipping all traders short CHF without guaranteed stops by up to 14% multiplied by their account leverage. Note that leverage from 50 to 200 to 1 is common in retail Forex dealing. Alpari (UK) publicly confirmed that the majority of their clients affected negatively by the CHF move had their account balances completely wiped out. Alpari have however made it clear the clients with positive account balances are fully segregated, and will have their funds returned to them
At the time of writing, Alpari is the only brokerage to have declared bankruptcy, giving cause for optimism that the industry will largely be able to weather the shock intact. FXCM have announced that the CHF move generated negative equity balances, i.e. client monies owed to FXCM not covered by depositors, of approximately $225 million. As a result, the company believes it may be in breach of some regulatory capital requirements, and has stated it is actively discussing the matter with regulators with a view to returning their capital to a pre-shock level.
IronFX Global Limited announced they were not affected by the events due to their strong risk management systems. ThinkForex announced “a strong financial position and business as usualâ€. FxPro released a statement affirming that negative balances have not affected client funds, and that the company remains fully operational and solidly capitalized.
