More Credit Contraction as Citigroup FXPB Closes Accounts

The musical chairs of extended credit in the foreign exchange (FX) market continues to take place since the Swiss National Bank removed its price floor on the EUR/CHF exchange rate and triggered historic moves in the currency markets. As providers of credit to hedge funds, brokers, banks and asset managers in the interbank FX market, prime brokers were exposed to the Swiss franc’s volatility in situations where customer collateral was below that of their losses from the franc.

While reports of trading-desk losses from major banks from the Swiss franc volatility has filtered out, very little is known about how their prime brokerage-services units fared. The volatility though has triggered prime brokers to analyze the risk value of their customer bases, with many clients deemed dangerous having their accounts terminated or credit allowances cut.

Join the iFX EXPO Asia and discover your gateway to the Asian Markets

The latest prime broker that Forex Magnates sources is reporting to have closed accounts is Citigroup. One of the largest FX prime brokers in the world, the company was believed to have been reviewing accounts following the SNB’s actions, with account terminations taking place as recently as last week.

Answering questions to Forex Magnates about their FX prime brokerage services and whether account closures were related to changes in their risk practices, a Citi spokesperson confirmed that accounts had been closed, stating, “Citi FX Prime Brokerage continuously reviews its accounts in the light of prevailing market conditions and service costs, and, in keeping with this regular practice, a small number of accounts have been off-boarded in the last week or two.”

The closures occur following reports that similar actions were initiated by Bank of America as well as sources telling Forex Magnates that another major prime broker has raised collateral minimums to $100 million for at least a portion of their clients. For firms affected by the off-boarding that don’t have alternative credit in place, the account terminations can bring to a standstill their existing trading activities until new relationships with prime brokers are initiated. However, due to the increased risks related to FX trading as volatility has risen, the on-boarding process at many prime brokers is an extensive and time consuming affair.