{"id":27505,"date":"2015-01-16T20:07:56","date_gmt":"2015-01-17T01:07:56","guid":{"rendered":"http:\/\/prefblog.com\/?p=27505"},"modified":"2015-01-16T20:07:56","modified_gmt":"2015-01-17T01:07:56","slug":"january-16-2015","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=27505","title":{"rendered":"January 16, 2015"},"content":{"rendered":"

News is starting to trickle in regarding casualties of the Swiss Franc move yesterday<\/a>:<\/p>\n

The Swiss National Bank\u2019s abrupt move on Thursday to abandon its cap on the Swiss franc led to massive losses, and at least one insolvency, among retail foreign exchange brokers and trading houses across the globe.<\/p>\n

Alpari UK<\/p>\n

Online foreign exchange Broker Alpari UK said on Friday it had entered into insolvency after clients sustained losses on the Swiss franc. It said volatility and lack of liquidity had \u201cresulted in the majority of clients sustaining losses which exceeded their account equity.\u201d<\/p>\n

FXCM Inc
…<\/b>
Global Brokers NZ Ltd<\/p>\n

The New Zealand foreign exchange dealer was forced to close due to hefty losses incurred due to the SNB\u2019s policy reversal. It said the franc\u2019s move had wiped out the equity of most of its clients with franc positions and left it without the ability to meet minimum capital requirements of 1 million New Zealand dollars ($780,000). New Zealand\u2019s regulator is seeking a status update on client funds from the broker.
…<\/b>
Swissquote
…<\/b>
OANDA
…<\/b>
Saxo Bank
…<\/b>
IG Group<\/p><\/blockquote>\n

… and at least one fund<\/a>:<\/p>\n

IG Group shares fell 4.4 percent yesterday. The U.K. spread-betting firm said the financial impact from the surge in the Swiss franc was partially dependent on its ability to recover client debts.<\/p>\n

The market turmoil turned the $1.9 billion John Hancock Absolute Return Currency Fund into the biggest loser among U.S. peers. It tumbled 8.7 percent yesterday, the steepest drop on record and the most among more than 2,000 U.S.-domiciled funds tracked by Bloomberg with at least $1 billion under management. The fund had its second-biggest short position in the franc at the end of November, according to the latest fact sheet on John Hancock\u2019s website.<\/p><\/blockquote>\n

The FXCM problem is attracting some notice<\/a>:<\/p>\n

FXCM Inc. (FXCM), the brokerage facing a shortfall of nearly a quarter-billion dollars after highly-leveraged investors made losing bets on the Swiss franc, pushed back against U.S. regulatory efforts that likely would have left it less vulnerable.<\/p>\n

In 2010, the Commodity Futures Trading Commission sought to force individual investors trading currencies to give their broker 10 cents in capital to back every $1 in positions. The regulator failed to accomplish that amid pressure from New York -based FXCM and other brokers, meaning only 2 cents must be pledged.
…<\/b>
The client losses are shining a spotlight on U.S. regulators\u2019 oversight of retail currency trading and whether they stopped short of necessary curbs to protect customers. In contrast to other markets, investors buying stock with borrowed money must put up at least 50 percent of the purchase price under Federal Reserve rules. The CFTC will probably move to review past efforts to limit currency-trading risks, former officials say.<\/p>\n

\u201cLeverage is a big issue that CFTC probably will want to look at as well as increasing transparency and maybe the capital buffer,\u201d Sharon Brown-Hruska, a former commissioner at the CFTC and vice president at the NERA Economic Consulting firm, said in a phone interview.
…<\/b>
While FXCM announced the customer losses and possible breach of capital requirements Thursday, GAIN Capital Holdings Inc. (GCAP) said it generated a profit. GAIN said in a statement that it had reduced traders\u2019 ability to use leverage last September for Euro-Swiss Franc trades.<\/p><\/blockquote>\n

We can only hope that the regulators are not able to use this fiasco as a cause celebre to destroy the retail FX market. I see no problem with a 2% margining requirement for FX … but it also seems to me that FXCM had absolutely no protection against a big move … a deep out-of-the-money call, for instance.<\/p>\n

Even with Goldman’s exemplary conduct in hedging risk during the crunch as an example (as discussed on July 26, 2010<\/a>), FXCM managed to screw things up. So the sharks smile<\/a>:<\/p>\n

Leucadia National Corp. gave FXCM Inc. a $300 million cash infusion, extending a lifeline to the currency brokerage hobbled by the Swiss central bank\u2019s decision to let the franc trade freely against the euro.<\/p>\n

Leucadia, which owns New York-based investment bank Jefferies Group, extended FXCM a two-year, $300 million senior secured term loan with an initial coupon of 10 percent, according to a statement Friday. The transaction allows FXCM, the largest U.S. retail foreign-exchange broker, to \u201ccontinue normal operations,\u201d according to the statement.<\/p>\n

Shares of New York-based FXCM had tumbled as much as 92 percent to 98 cents Friday morning before they were halted. After the Leucadia deal was released, FXCM\u2019s stock rebounded to $4.44 as of 5:40 p.m. New York time. That\u2019s still down from the prior day\u2019s closing price of $12.63<\/p><\/blockquote>\n

… and, just so we can keep up to date on an old story, Moody’s cut Russia to Baa3<\/a>:<\/p>\n

Moody\u2019s lowered the country to Baa3, one step above junk, from Baa2. The credit grade matches those of Standard & Poor\u2019s and Fitch Ratings. The rating, on par with India and Turkey, is on review for a further reduction, the ratings company said in a statement.<\/p>\n

\u201cThe severe — and likely to be sustained — oil price shock, alongside Russian borrowers\u2019 highly restricted international market access due to ongoing sanctions, is undermining economic fundamentals and increasing financial stresses on both the public and private sectors,\u201d Moody\u2019s said in a report<\/p><\/blockquote>\n

Holy smokaramaville, it was a hot day for the Canadian preferred share market! PerpetualDiscounts won 61bp, FixedResets gained 21bp and DeemedRetractibles were up 46bp. The Performance Highlights table is enormous, with a great many low-spread FixedResets on the bad side, with the good side containing Straight Perpetuals of all flavours and a fair smattering of high-spread FixedResets. Volume was very high.<\/p>\n

For as long as the FixedReset market is so violently unsettled, I\u2019ll keep publishing updates of the more interesting and meaningful series of FixedResets\u2019 Implied Volatilities. This doesn\u2019t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.<\/p>\n

Remember that all rich \/cheap assessments are:<\/p>\n