Swiss franc surge rocks global currency brokers

[LONDON] Currency brokers worldwide counted the cost on Friday of the Swiss franc's unexpected surge with Alpari UK declaring insolvency and others warning of heavy losses.

Switzerland's central bank shocked foreign exchange (forex) and other financial markets on Thursday when it scrapped its three-year bid to stop the franc from strengthening.

Currency broker Alpari UK - sponsor of English Premier League football team West Ham United - declared insolvency Friday after clients' losses linked to the sharp rise in the Swiss franc were passed on to the company.

The news, revealed in a statement, follows a similar announcement by Global Brokers NZ in New Zealand.

FXCM in New York said it "may be in breach of some regulatory capital requirements" after clients left it with losses of up to US$225 million.

"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 UK said in a shock statement.

"This has resulted in the majority of clients sustaining losses which has 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 today ... that it has entered into insolvency." Switzerland's central bank cancelled a policy Thursday to stop its currency strengthening beyond 1.20 against the euro, sending the franc soaring.

FXCM revealed overnight that "due to unprecedented volatility in euro/Swiss franc (...) the company may be in breach of some regulatory capital requirements".

In New Zealand, Global Brokers NZ announced it was closing after suffering "a total loss of operating capital".

The Auckland-based broker sustained losses that meant it could no longer meet New Zealand regulators' minimum capital requirements and was shutting its doors.

In London, IG Group announced that its losses arising from the matter would total up to £30 million (US$46 million), but stressed its "extremely robust financial position".

Rival City Index meanwhile reassured clients that it had not suffered "any material impact".

The move by the Swiss central bank SNB to stop pegging the franc against the euro caught the market by surprise.

Thursday's news immediately sent the Swiss unit surging 30 per cent to 0.8517 before ending the day at 1.0035. In London trade on Friday, one euro bought 1.0156 francs.

The SNB had been defending the exchange rate floor since September 2011 in an effort to protect the country's vital export and tourism industries, even buying massive quantities of foreign currencies to do so.

The rate was introduced as the eurozone crisis sent investors to the safe haven currency. More recently, the Russian ruble crisis put renewed pressure on the franc.

But the bank, which less than a month ago vowed to enforce the exchange rate floor "with the utmost determination", said on Thursday it was no longer needed.

AFP