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US broker FXCM hit by Swiss franc shift

Friday, January 16, 2015 - 23:47
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Shares of leading foreign-exchange broker FXCM were suspended as trade opened on Friday, after the company admitted that the sharp rise in the Swiss franc had possibly left it capital-short.

[NEW YORK] Shares of leading foreign-exchange broker FXCM were suspended as trade opened on Friday, after the company admitted that the sharp rise in the Swiss franc had possibly left it capital-short.

The New York Stock Exchange suspended the shares after they plunged nearly 90 per cent in pre-market trade, due to FXCM's admission that some clients lost heavily on the franc's big shift, and their accounts could not cover the losses.

As a result of the Swiss National Bank's decision the prior day to lift the ceiling on the franc, sending it sharply higher, "clients experienced significant losses, generated negative equity balances owed to FXCM of approximately US$225 million," FXCM said.

"As a result of these debit balances, the company may be in breach of some regulatory capital requirements." At the same time a second forex broker, Interactive Brokers Group, said uncovered losses accrued by its customers ran to US$120 million.

Interactive Brokers said, however, that the shortfall amounted to less than 2.5 per cent of the company's net worth.

Shares in the company fell 6.2 per cent in early trade.

The Swiss National Bank unexpectedly announced Thursday that it was abandoning the minimum rate of 1.20 francs against the euro that it had stood by for more than three years.

The shock move, bowing to the pressure on the franc to rise as the euro sinks against the US dollar and other currencies, rocked the global foreign-exchange market.

British brokerage firm Alpari UK and another in New Zealand declared insolvency.

Meanwhile GAIN Capital, a New Jersey forex and derivatives broker, said it came out ahead on Thursday despite some clients losing heavily.

"GAIN generated a profit for the day, considering both trading profit and negative client equity, leveraging its robust risk management framework and heightened customer trading activity following the surprise announcements by the Swiss National Bank," it said.

"We remain well-capitalized, financially sound and well-positioned to grow market share and, as one of the industry's leading consolidators, take advantage of the strategic acquisition opportunities that will result from yesterday's events," it said.

AFP