The City forex broker and West Ham United sponsor Alpari UK, has been left reeling after an extreme movement by the Swiss franc against the euro, sterling and dollar resulted in massive losses for its clients.
A cap that held the euro at 1.20 Swiss francs or stronger was unexpectedly removed, causing the value of the euro against the franc to plunge 30 percent, to just 0.80 francs, before making a partial recovering to 1.02 francs.
However, the resultant 13-15 percent hike in value against the euro was still enough to cause Alpari UK’s clients to sustain losses which exceeded the account holders’ equity, a loss which the broker was left to pick up. In some cases companies have become insolvent and facing administration or liquidation.
Currency speculators are facing massive losses
The shock removal of the Swiss franc cap has left many of the City’s currency speculators, particularly large hedge fund with short positions in the Swiss franc, to come to terms with potentially massive losses.
The IG Group, a London-based trading firm, is another that is staring huge losses in the face. The removal of the longstanding link between the Swiss franc and the euro has cost the company an estimated £30million, echoing the plight of Alpari.
Those companies affected by extreme movements in the currency have condemned the Swiss National Bank for a lack of transparency and forewarning of its intentions to make what an Alpari analyst called a “horribly irresponsible move”.
Euro cap is no longer justified
The Swiss National Bank imposed the cap on its currency in September as a method of preventing investors fleeing the euro from driving the value of the Swiss franc up. Without the cap, the high value of the franc would hit exports and tourism hard, potentially derailing the otherwise stable Swiss economy.
Despite claims from the Swiss National Bank that the cap is no longer justified, shares in Switzerland’s leading companies fell by 8.67 percent as the stock market experienced its worst day since 1989.
Analysts are predicting that with an estimate 40 percent of Swiss exports destined for the eurozone, a disproportionately strong franc will hit exporters hard, making it increasingly difficult to compete globally.
Exceptional volatility and significant losses
Rules set by the industry regulator, the Financial Conduct Authority, stipulate that the funds of private customers must be separated from firms’ balance sheets. This means that clients with positive account balances should be able to recover their funds.
A statement released on Alpari’s website, said: “The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal has resulted in exceptional volatility and extreme lack of liquidity.
“This has caused the majority of clients to sustain losses which have 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 (16/01/2015) that it has entered into insolvency”.
Alpari UK was established in 1998 and launched its UK arm in 2004. It currently employs 900 people.
Incidentally, this was not the first time the sponsor of West Ham United has gone bust. In 2008, the UK’s third largest tour operator, XL Leisure Group, collapsed as the economic downturn took hold. A spokesperson for the football club has reassured supporters that Alpari’s situation will not affect the club.
If you have any concerns about your company insolvency due to investments in the Swiss Franc then contact us for a confidential no obligation consultation on 08000 746 757.