“January 15th 2015 was a morning like any other, until all hell broke loose. The first sign that something out of the ordinary was afoot, involved the sight of a dealer bursting out of his office and running around like he was in flames.” – Charalambos Psimolophitis, CEO of FxPro
The floor opens up
It’s been a year now since Finance Magnates’ Victor Golovtchenko broke the news- the Swiss National Bank “decided that direct intervention in the market is an option no more”, and arbitrarily abandoned the exchange rate floor on the EUR/CHF pair. As all hell broke loose, several brokers were forced to freeze trading as a damage-control measure.
“It’s A Tsunami” – Swiss Franc Soars Most Ever After SNB Abandons EURCHF Floor; Macro Hedge Funds Crushed http://t.co/J9AhNxzHUC
— zerohedge (@zerohedge) January 15, 2015
Finance Magnates reached out to Mr. Psimolophitis for his recollections of the fateful day: “It was 11:30am and the SNB had removed the floor. A quick glance at the charts confirmed that this was going to be one of those days I’d be asked to comment on a year later, for its ‘anniversary’. I distinctly remember Rudyard Kipling’s “If” coming to mind during all the commotion.”
The dust settles…
“There was a great deal of scrambling for telephones, but there were not many answers to be had until after the dust settled,” said Mr. Psimolophitis. After the panic died down and finance professionals the world over took stock of the damage, what they saw was devastating. Alpari UK applied for insolvency as a direct result of the crisis, swiftly followed by Boston Prime and BT Prime.
IG Group faced £30 million in losses, while Deutsche Bank lost almost $150 million and Barclays tens of millions…all told, in the immediate aftermath of the bombshell Finance Magnates reporters estimated total industry losses at approximately $1 billion.
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I distinctly remember Rudyard Kipling’s “If” coming to mind during all the commotion.
FXCM saw its shares lower by 85% as it opened the following day, shortly afterwards receiving a $300 million bailout from Leucadia National, a fact that eventually made it necessary for the brokerage to sell off its non-core assets such us FXCM Asia and FXCM Japan– and even today the loan has still not been paid off. One of our readers commented: “I was going to open an FXCM account Monday.” No update from this individual was forthcoming, but it seems safe to assume that in the end, he did not.
In the midst of the crisis, Finance Magnates published an exclusive interview with Drew Niv, the CEO of FXCM, in addition to comments from the many other brokerages that were also suffering the effects of the storm.
Brokers and traders
An interesting issue that arose in the aftermath was whether brokers were prepared to forgive the negative balances of their clients, a subject which has had repercussions regarding regulation in the trading industry. We at Finance Magnates were inundated by emails from worried readers- prime brokers, brokers, and traders alike, and so we ran live updates on the losses of top brokerages as the drama played out.
— StockTwits (@StockTwits) January 16, 2015
It has been argued that the last comparable black swan event was the European Monetary System break-up in 1992, known in the UK as Black Wednesday. The effects of the actions of the Swiss National Bank are still very much being felt today.
Visit any of the above links and you will see frantic comments from worried traders, and heated debates regarding the effects of the crisis, and where the blame should be put.
— Silla Brush (@sabrush) May 28, 2015
The question is, why did this happen, and what can we learn from it? Was the SNBs decision ethical? Most importantly, how has the event affected the trading world as we know it today? Leave a comment and tell us your thoughts on the issue.
In a coming series of articles, Finance Magnates will examine what has changed over the past year in the industry and what changes are yet to come. We begin with the liquidity and clearing situation in the post-SNB crisis world.