FXCM (FXCM) Could be Insolvent After SNB Move

Shares of FXCM Inc. (FXCM) were trading down -11.00 or -87.09 percent to $1.63 per share in this morning's premarket. The company is trying to meet capital requirements after many of its clients lost massive amounts of money in the Swiss Franc after the Swiss National Bank removed its peg on the Euro. FXCM stock closed at $12.34 per share, down -2.24 or -15.06 percent in Thursday's regular trading session.

New York City, New York based FXCM Inc. was founded in 1999 and is the largest online foreign exchange broker in the United States.
The company has been through difficulties in the past, which began when it partnered with the now defunct Refco group in 2003. Refco bought a 35 percent stake in FXCM. After Refco collapsed in 2005, FXCM was in litigation for years.

FXCM allows customers to operate in the forex market with leverage and "direct market access", meaning that FXCM takes a number of markets from different dealers and lets the client have the best price on any given trade. The company had it initial public offering in 2010 at $14 per share and has offices in major cities around the world.

FXCM announced this morning that it might be in breach of some regulatory capital requirements because of the unprecedented volatility in Swiss Franc currency pairs after the move by the Swiss National Bank or SNB. The SNB removed a three and half year old peg on the Euro in a surprise move yesterday, making the Swiss Franc rally more than +30 percent.

The movement in the EUR/CHF currency pair led to significant customer losses, triggering margin calls. Because of the sudden crash in the currency rate, FXCM was left with a negative equity balance totaling -$225 million. The company said in a statement that, "We are actively discussing alternatives to return our capital to levels prior to today's events and discussing the matter with our regulators."

Another forex broker, Alpari UK, headquartered in London released a statement announcing they had entered insolvency due to volatility in the Swiss Franc. Alpari stated that, "The recent move on the Swiss franc caused by the Swiss National Bank's unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity, this has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us."

Alpari said that both its primary and secondary liquidity providers â?? large financial institutions that make markets in the currency pairs â?? had gone unresponsive for hours after the announcement by the SNB.

Credit Suisse analyst A. Serreo said that they "believe FXCM's liquidity provider stopped making markets in the Swiss Franc leaving the company unable to close losing client positions as the cushion provided by client collateral was absorbed." Credit Suisse downgraded FXCM from Outperform to Underperform, reducing their target price for FXCM stock from $18 per share to $4 per share.

Other News About FXCM
FXCM Reports Monthly Metrics
Company reported record volume figures just three days ago.
Casualties From Swiss Shock Spread From New York to New Zealand
Other casualties from the Swiss shock include IG Group Holdings and Global Brokers NZ Ltd.

Other Stocks in the News
How Are Things for BP When the Chance of a $14 Billion Hit Comes as a Relief?
U.S. Justice Department was seeking $18 billion for the 2010 Gulf of Mexico oil spill.
Could BlackBerry be Samsung's answer to Apple and China?
The two companies are in talks for a possible merger.

Published on Jan 16, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

Posted in ...