(Adds details on Saxo Bank clients' trades)
By Anirban Nag and Jemima Kelly
LONDON Jan 15 The foreign exchange market
defied worries about systemic failure on Thursday as
Switzerland's move to cut its franc currency loose jolted it
with the biggest market swing since the 1970s.
In 25 of the most turbulent minutes on markets in years, the
Swiss franc soared more then 40 percent against the euro
then gave back half its gains, after the SNB scrapped
its three-year old cap on the franc versus the single currency.
"This was really a meteorite crashing into the foreign
exchange market," said Douglas Borthwick, managing director at
Chapdelaine Foreign Exchange in New York. "A move like this is
going to have reverberating effects across the board."
Some traders said it was "carnage" in the market as hedge
funds in particular suffered huge losses. On the EBS trading
system, one miss-hit saw the euro quoted at 0.0015 francs,
having spent the last few months ranging between 1.20 and 1.21
francs. The SNB had capped the currency at 1.20 francs per euro
since September 2011.
One smaller retail platform briefly suspended trade in
"Out of nowhere, without any heads up, the peg has suddenly
gone on a Thursday morning in mid-January. For market
participants, that is just very difficult to deal with," said
Chris Morrison, head of strategy for hedge fund Omni Macro which
manages $550 million.
But despite fears of systemic failure, the market
functioned without major problems.
EBS, one of the main venues for banks and other major
players trading the dollar, euro, yen and Swiss franc, said
normal trading conditions were maintained.
"EBS Market maintained normal trading conditions throughout
this period of extreme volatility. A miss-hit occurred resulting
in a market low being published," a spokeswoman for ICAP
, EBS's parent company, said in a statement.
Currency trading platform Forex.com, the trading arm of Gain
Capital, briefly suspended trading in Swiss francs due to a
surge in the currency's volatility.
But other platforms continued to allow trades, despite
liquidity drying up and the spread between bids and offers
widening for euro/Swiss franc and dollar/Swiss franc
By late London trade, the gap between bids and offers had
narrowed and currency pairs had stabilised, although many
traders and some retail platforms were left with losses. After
the close of trading, Denmark's Saxo Bank, one of the biggest
players in retail foreign exchange trading, said it would
potentially set different rates for transactions conducted after
the SNB move.
Saxo said in a statement it had filled client orders in an
"extremely illiquid market" around the shock move, and that once
the bank is better able to determine market liquidity, "all
executed fills will be revisited and amended to more accurate
"This may result in a worse execution rate than the
originally filled level," the bank said in a statement.
BIGGEST SWINGS SINCE 1970s
The swings in the franc on Thursday were the biggest since
most major currencies moved to free-floating regimes in the
Dealers said they had seen a number of major investors lose
as much as 20 percent before managing to complete trades to
close their bets on a stronger dollar against the franc.
The SNB's decision caught out speculative investors such as
hedge funds, which entered the week with the greatest number of
net short positions since early June 2013, according to CME
The latest data showed hedge funds and other speculative
investors were net short 24,171 futures contracts and another
662 options contracts, for a combined short of 24,833, worth
about $3.5 billion. Each contract is worth 125,000 francs.
British interdealer broker IG Group said many clients were
able to close out their Swiss franc positions with IG more
swiftly than the broker itself managed to close out its hedged
positions on the currency in the forex markets. It forecast it
would take a hit of around 30 million pounds.
Its shares ended 4.4 percent lower at the London Stock
(additional reporting Nishant Kumar in London and Sam Forgione
in New York, editing by Nigel Stephenson and Christian Plumb)