Retail foreign exchange brokers from New Zealand to New York were nursing hefty losses from the Swiss National Bank's shock move to abandon a cap on its currency, with some even being forced out of business.
Retail broker Alpari UK filed for insolvency today after customers sustained losses following the SNB's decision.
"The recent move on the Swiss franc caused by the SNB'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.
The company is the shirt sponsor of English Premier League club West Ham.
"This has resulted in the majority of clients sustaining losses which exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm that it has entered into insolvency," the company added.
Online trading-services provider London Capital Group Holding suffered franc-related losses that it said would not exceed £1.7m. Such losses have raised questions about the future of retail trading in the high-octane world of foreign exchange.
The latest survey from the Bank of International Settlements puts the share of retail trade at nearly 4% of daily spot turnover of nearly $2 trillion.
Regulators in New Zealand and Hong Kong said they were checking on brokers and banks trading the Swiss franc, after reports of volatility and losses.
The franc surged as much as 30% yesterday after the SNB caught markets off guard when it stopped capping the franc at 1.20 per euro.
New Zealand foreign exchange dealer Global Brokers NZ said it was closing due to hefty losses.
The national Financial Market Authority said it would "be seeking assurances that the client funds have been protected and segregated".
The Hong Kong Monetary Authority said it was "following up with the banks on their practice in this regard ... to understand the implication, if any, but we would not comment on the situation of individual banks."
Shares in New York-listed FXCM, one of the biggest platforms catering to online and retail traders of currencies, were suspended after losing nearly 90% of their value in pre-market trade.
The company admitted some of its clients lost hugely after the Swiss National Bank loosened its cap on the franc's value, and were $225m short of funds owed to the company.
"As a result of these debit balances, the company may be in breach of some regulatory capital requirements," it said today.
Foreign exchange broker OANDA said in a statement it "will pardon our clients' negative account balances associated with this market event" and would not "re-quote or amend" clients' trades on the Swiss currency.
OANDA's move contrasted with Denmark's Saxo Bank, one of the biggest players in retail foreign exchange trading, which said last night it would potentially set different rates for its clients' transactions.
Saxo Bank's chief financial officer Steen Blaafalk told Reuters some clients had suffered losses, but the bank was well capitalised. Retail investors, some of whom face huge losses, protested when Saxo said it might set different rates for transactions.
