What is happening to the Swiss franc?!

[Magda Hassan]

I see the Swiss National Bank has just cut it free from the Euro and now its 30% up crushing exporters. Is this some sort of payback for the referendum? Found this when I went hunting for info.

"It's Carnage" - Swiss Franc Soars Most Ever After SNB Abandons EURCHF Floor; Macro Hedge Funds Crushed

Submitted by Tyler Durden on 01/15/2015 06:07 -0500

"As if millions of macro hedge funds suddenly cried out in terror and were suddenly silenced"

Over two decades ago, George Soros took on the Bank of England, and won. Just before lunch local time, the Swiss National Bank took on virtually every single macro hedge fund, the vast majority of which were short the Swiss Franc and crushed them, when it announced, first, that it would go further into NIRP, pushing its interest rate on deposit balances even more negative from -0.25% to -0.75%, a move which in itself would have been unprecedented and, second, announcing that the 1.20 EURCHF floor it had instituted in September 2011, the day gold hit its all time nominal high, was no more.
What happened next was truly shock and awe as algo after algo saw their EURCHF 1.1999 stops hit, and moments thereafter the EURCHF pair crashed to less then 0.75, margining out virtually every single long EURCHF position, before finally rebounding to a level just above 1.00, which is where it was trading just before the SNB instituted the currency floor over three years ago.
Visually:

The SNB press release:

Swiss National Bank discontinues minimum exchange rate and lowers interest rate to 0.75%

Target range moved further into negative territory

The Swiss National Bank (SNB) is discontinuing the minimum exchange rate of CHF 1.20 per euro. At the same time, it is lowering the interest rate on sight deposit account balances that exceed a given exemption threshold by 0.5 percentage points, to ?0.75%. It is moving the target range for the three-month Libor further into negative territory, to between 1.25% and -0.25%, from the current range of between -0.75% and 0.25%.

The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets. This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation.

Recently, divergences between the monetary policies of the major currency areas have increased significantly a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.

The SNB is lowering interest rates significantly to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions. The SNB will continue to take account of the exchange rate situation in formulating its monetary policy in future. If necessary, it will therefore remain active in the foreign exchange market to influence monetary conditions.

The resultant move across all currency pairs has seen the EUR and USD sliding, the USDJPY crashing, and US futures tumbling even as European stocks plunged only to kneejerk higher as markets are in clear turmoil and nobody knows just what is going on right now.
In other asset classes, Treasury yields, understandably plunged across the entire world, and the entire Swiss bond curve lest of the 10 Year is now negative, with the On The Run itself threatening to go negative soon as can be seen on the table below:

All Swiss government bill and bond yields out to 7 years are negative: pic.twitter.com/b4YCVSDFu7
Jamie McGeever (@ReutersJamie) January 15, 2015

Crude and other commodities, except gold, are also tumbling, as are most risk assets over concerns what today's epic margin call will mean when the closing bell arrives.
An immediate, and amusing, soundbite came from the CEO of Swatch Nick Hayek who said that "words fail me" at the SNB action: "Today's SNB action is a tsunami for the export industry and for tourism, and finally for the entire country." More from Reuters:

Swatch Group UHR.VX Chief Executive Nick Hayek called the Swiss National Bank's decision to discontinue the minimum exchange rate on the Swiss franc a "tsunami" for the Alpine country and its economy.

"Words fail me! Jordan is not only the name of the SNB president, but also of a river… and today's SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country," Hayek said in an emailed statement on Thursday.

Swiss watchmakers, which are also grappling with weak demand in Asia, are very exposed to moves in the Swiss franc exchange rate because their production costs are largely in Swiss francs, but most of their sales are done abroad.

Shares in Swatch Group fell 15 percent at 1056 GMT, while Richemont CFR.VX was down 14 percent, underperforming a 9 percent drop in the Swiss market index .SSMI following the SNB's announcement.

"Absolutely shocking ... For companies with international operations translated earnings are going to be lower and if companies make products in Switzerland it is going to hurt margin. It is a terrible day for corporate Switzerland," Kepler Cheuvreux analyst Jon Cox said

Indeed, in retrospect, it does seem foolhardy that the SNB, whose balance sheet ballooned to record proportions just to defends it currency for over three years would give up so easily. The one silver lining, so to say, is that gold prices in CHF just crashed by some 13%.
Some more soundbites from strategists, none of whom foresaw this stunning move:

[David Guyatt]

Back in December the SNB introduced negative interest rates. In other words holders of swiss francs had to pay the government a rate of interest just to hold the currency. This is not the first time this has happened. It seems that this action did not have sufficient impact to reduce the demand to a sufficient level.

According to a report carried by the BBC, the SNB said:

In a statement, the SNB said: "The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.

I could easily be wrong, but my take is that the biggest influx of holders over recent times has come from Euro nationals due to growing concerns about the Euro's longevity - and this action is intended to force them to divest from the CHF.

This is confirmed by the following comments from the above BBC story:

"This turns up the heat on the eurozone and other economies who have benefited from weakening their currency in the past couple of years."

[Magda Hassan]

Just like that. Poof. Gone.

Largest Retail FX Broker Stock Crashes 90% As Swiss Contagion Spreads

Submitted by Tyler Durden on 01/16/2015 08:26 -0500

• Central Banks
  
• Credit Suisse
  
• New Zealand
  
• Swiss Franc
  
• Swiss National Bank
  
• Transparency
  
• Volatility
  

As we first reported last night, FXCM was among the first of many retail FX brokers (and the largest) to see its clients suffer massive losses from yesterday's Swiss Franc surge following the SNB decision to unleash market forces. There are now at least 4 retail FX brokers (FXCM, Excel Markets, OANDA, and Alpari) who have announced "issues" but FXCM, being among the largest and publicly traded is the most transparent example of wjust what can go wrong when average joes are allowed 100:1 leverage. FXCM is now stuck chasing clients for money they do not (and will never) have.. and its stock is down 90%, trading a $2 this morning (down from $17 on Wednesday). As Credit Suisse notes, time is running out as regulators "tend to be impatient once capital requirements are breached."

FXCM crashes...


And the crashes some more as Credit Suisse suggests it's all over


We suspect there will be considerably more to come as CME's triple margin kicks in today...
* * *
So far 4 brokers have issues...
UK-based Alpari

From Alpari's statement:

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. This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency. Retail client funds continue to be segregated in accordance with FCA rules.

This is what Alpari's CEO, James Hughes, who dubbed the SNB move as "horribly irresponsible", for obvious reasons now, said:

"I'm sure this isn't the last we'll hear on the subject and the SNB are going to be heavily scrutinised in the coming weeks for what appears to be a horribly irresponsible move on their part. For years central banks have tried to avoid days like today by being transparent and making moves like this over time while drip feeding their intentions to the markets. The SNB have shown themselves to be amateurs today and there is many people that will suffer considerably as a result."

* * *

FXCM is in trouble...

• *FXCM: CLIENTS EXPERIENCED SIGNIFICANT LOSSES AFTER SNB MOVE
  
• *FXCM: NEGATIVE EQUITY BALANCES OWED TO FXCM ABOUT $225M
  
• *FXCM: MAY BE IN BREACH OF SOME REGULATORY CAPITAL REQUIREMENTS
  
• *FXCM DISCUSSING ALTERNATIVES TO RETURN CAPITAL TO PRIOR LEVELS
  

FXCM an online provider of forex trading and related services worldwide, announced today due to unprecedented volatility in EUR/CHF pair after the Swiss National Bank announcement this morning, clients experienced significant losses, generated negative equity balances owed to FXCM of approximately $225 million.
As a result of these debit balances, the company may be in breach of some regulatory capital requirements.
We are actively discussing alternatives to return our capital to levels prior to today's events and discussing the matter with our regulators.
* * *
National Futures Association is in contact with FXCM...

"We are in contact with the firm and the CFTC and have no further comment at this time": Karen Wuertz, spokeswoman for the National Futures Association, the futures industry's self-regulatory agency.

* * *

And Excel Markets is done (as ForexLive's Adam Button explains)... Forex broker Excel Markets calls it quits on SNB shocker
Clients of New Zealand forex broker Global Brokers NZ Ltd, which operates Excel Markets, have been told the company "can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business." Client positions will be closed within the next hour.
Here is the statement (the emphasis, bolding and caps is theirs):

The dramatic move on the Swiss franc fueled by the Swiss National Bank's unexpected policy reversal of capping the Swiss franc against the euro has resulted in rare volatility and illiquidity. Both our primary and backup liquidity providers became unresponsive or illiquid for hours after the event. The majority of clients in a franc position were on the losing side and sustained losses amounting to far greater than their account equity. When a client cannot cover their losses it is passed onto us.

ALL OPEN POSITIONS MUST BE CLOSED BY 5PM NEW YORK TIME OR THEY WILL BE AUTOMATICALLY CLOSED AT THAT TIME. NEW POSITIONS CANNOT BE OPENED AS OF THIS TIME.ALL CLIENT FUNDS ARE IN SEGREGATED ACCOUNTS AND NEVER USED FOR LP MARGINS. 100% OF POSITIVE CLIENT EQUITY OR BALANCE IS SAFE AND WITHDRAWABLE IMMEDIATELY.

Global Brokers NZ Ltd. STP's 100% of order flow and has sustained a total loss of operating capital.GBL can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business. Losses incurred on trades that could not be exited due to illiquidity were losses incurred directly with the liquidity provider and we do not have the ability to reimburse those. Please note the interbank market for francs was illiquid for hours after the event and no traders with an open franc position were able to close it for a significant period of time, at any broker.

News of the impact of this event on companies and traders is just beginning to come to light. As Directors and Shareholders we would like to offer our sincerest apologies for this devastating turn of events, and to thank you for being such a supportive group.

We ask that you place withdrawal requests for your account balance at your earliest convenience and allow for minor delays as our team begins to experience higher than usual service volumes.

In my opinion, any broker that uses ALL CAPS deserves whatever they get.
We're encouraged that client funds are segregated. They won't be the last to go under on this and we hope that everyone has been prudent with client money.
* * *
Which likely explains the carnage after the market close today in EURCHF


* * *
Canadian firm OANDA says suffered loss on Swiss Franc move...

Brokerage says client enquiries, withdrawals and deposits are being handled as normal, according to a statement on its website:

In the wake of unprecedented market events this morning, OANDA demonstrated its ongoing commitment to doing right by its clients.
Despite suffering losses and vanishing liquidity in the institutional hedging market, OANDA remained true to its 14-year legacy of transparency, integrity and fairness to our clients. OANDA did not re-quote or amend any CHF cross client trades. We even took the further step of forgiving all negative client balances that were caused when clients could not close out their positions fast enough.

Client inquiries are being handled normally and those making withdrawals and deposits are able to do so as normal.

OANDA is proud of its strong reputation for fairness and integrity. We thank our customers for their continued loyalty and welcome new traders who want to experience outstanding service and execution.

* * *
4 down - more to come...

[R.K. Locke]

Webster Tarpley discusses this issue (along with Charlie Hebdo, Belarus and Syriza) here:

http://www.kpfa.org/archive/id/110541