The SNB Crisis Lesson: Only the Strong Will Survive

Despite growing demand by traders for stable liquidity rather than better spreads or lower commissions, some brokers still take unnecessary

This article was written by Michael Davies, Senior Sales Manager at Sucden Financial.

 

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Currency crises are inevitably going to happen from time to time. History has shown us that anything is possible – and the Swiss National Bank events last year were a reminder of this and confirm my view that, in the long-term, only the financially strong firms will survive.

Michael Davies
Michael Davies

I believe that many brokerages have learned valuable lessons from the SNB crisis. For example, there has certainly been a noticeable shift from cost to counterparty risk. The majority of brokers we speak to are now more focused on working with larger, better capitalised liquidity providers (LPs).

Before SNB events potential new clients seldom asked us for our financials and always focused heavily on spreads or commissions. Post SNB, virtually all potential clients request our audited financial information and safety and security of funds is now just as important as finding the best value LP to work with.

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Brokers are still taking risks for a quick buck

I am surprised, however, that there are still a number of brokers out there who clearly haven’t learned from the events and are still eager to ignore prudence in search of profit. They are certainly putting themselves at risk as casualties in a future financial crisis.

Post SNB, virtually all potential clients request our audited financial information

It is always difficult to predict the next crisis but when we look at the companies that collapsed, it is usually because their underlying financials were weak or because they over extended themselves, taking unnecessary risks for a quick buck.

 

The only thing a brokerage can do to protect themselves is to take a more cautious approach to growth and try to strengthen the financial position of their organisation so it can weather the next black swan.

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