While we are almost a month away from the SNBomb, the aftershocks are still felt. The sudden leap in the Swiss franc’s value left quite a few clients that shorted CHF in a case of a negative equity.
Most forex brokers did forgive negative balances: accepted the liquidation of the clients’ accounts and didn’t demand them to deposit more money. This is the right thing to do. However, there are some brokers who pursue the money. Here are the updates:
- Saxo Bank: According to a report in the WSJ, the Denmark based company is taking a hard line against customers, blaming them for losses. “Clients that lost money can blame us, or they can blame themselves.” says Steen Blaafalk, Saxo’s chief financial and risk officer. In the article there are more reports that “Saxo has retroactively repriced some trades and is chasing its own customers for about $100 million in losses”. Update: Potential class action lawsuit against Saxo Bank on SNBomb adjustments
- Abshire Smith: The UK based broker is also demanding clients to cover negative balances. I have received a letter from a Danish client that was referred to the broker via NPinvestor. The platform is based on FXCM. The broker asked this specific trader to pay back the debt on January 21st and presented the execution price as better than the vast majority of brokers: 1.1497 on EUR/CHF.
- FXCM Asia: The global company announced it is forgiving negative balances of 90% of clients, and going for the high net worth and experienced traders. Basically, leaving retail traders alone. Nevertheless, and moving forward, the Hong Kong based subsidiary of the company has announced a change in its agreement with clients, basically making them liable for negative balances from March 9th and onwards.
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CMC: The broker is sending letters to clients demanding they cover their negative balances. Here is an example:Dear Mr xxxxxxxxx
Account number: 11111111
Outstanding Balance: -41,296.17 GBP
We have recently conducted a review of your Account and would like to
bring to your attention that there is currently an outstanding balance noted
above.
We kindly request that you fund your Account without delay. You can do
this by directly logging into your Account and clicking on the ‘Payments’
button.
Alternatively please call our Premium Client Management team on 0800
0933 633 or +44 (0)20 3003 8588 who will be happy to assist with taking a
payment from you.
Should you have any questions relating to this matter or about your
Account generally, please do not hesitate to contact us.
Please note that the outstanding balance quoted in this communication is
taken at the close of business on the previous day’s trading.
Kind Regards,
- HMS Luxembourg: You can see a letter from them here.
- Interactive Brokers: We have seen a letter sent to clients demanding the settlement of negative balances from this broker.
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IG: The broker is sending these type of letters to clients:Dear XYZ,Our records show that you have an outstanding debit balance of £XZY due on your account.Please clear this balance in full as soon as possible.You can add the necessary funds by logging in to our dealing platform and making a payment through the ‘my account’ section, or by calling us on 020 7633 5304 with your debit or credit card details.You can discuss this debit balance with our Credit team by calling us on 020 7633 5304.
Kind regardsCredit teamT 020 7633 5304
T +44 (0)20 7573 0010
E [email protected] - Spectrum Live: The Australian broker that is part of BBY Limited is aggressively demanding clients to pay their negative balances and threatens legal action if it isn’t done on time. A quote from one letter sent to a client: “In the event that payment is not received on or before 5pm, Thursday, 5 February 2015, BBY will have no alternative than to commence legal recovery proceedings without further notice”.
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ETX: Here is a letter sent to clients, explaining the situation and demanding payment:
Following the Swiss National Bank announcement that they would stop supporting the peg on the Swiss/Euro rate, there was a period in which all the Swiss Franc crosses gapped, that is prices moved significantly without there being any buyers/sellers for intervening prices. This event created a number of significant issues in the FX markets across the world.
Closing stops were automatically filled by the trading system even though there was no buyer/seller or actual market at the price of the stop(s). These prices, upon which the trades were executed by the trading system, were not true market prices. They were, therefore, replaced with trades executed at the first available rate at which the market actually traded and stabilised.
Please note that our Trade Desk reviewed the rates on Stop Loss orders, during this period, and identified those filled at incorrect rates. It was established that it was an instance of Manifest Error. We would like to remind you that rates are determined by the market as a whole and not by us. We can confirm that our EURCHF price of 1.0600 was chosen independently as our first available and viable/fair price and the same price was also the level used by one of our market making banks.
For further guidance, please refer to Sections 9.21-9.24 of the ETX Capital Customer Terms and Conditions, which you have agreed to:
9.21 Prices quoted are subject to confirmation by us. We will exercise all due care and skill in the preparation of the on-screen price but, due to the nature and speed of movements in the Underlying Market, the price indicated may not necessarily be the exact price available to open or close a Trade. We will not be liable for any losses or costs which you may incur as a result of not being able to open or close a Trade at a particular on-screen price, unless as a result of our fraud or wilful default.
9.22 Due to the potential for computer or other errors, we may take any reasonable step as set out in clause 9.23 for any Trades executed at prices which are the result of any error, omission or misquote (whether by us or any third party) which is manifest or palpable, including a misquote by us taking into account the current market and currently advertised prices (examples: the wrong price or market or any error or lack of clarity of any information, source or commentator), or is otherwise clearly at odds with the fair market price (a “Manifest Error”).
9.23 If a Trade is based on a Manifest Error, we may, acting reasonably and in good faith and in our sole discretion:
(a) void the Trade (i.e., treat the Trade as if the Trade had never taken place);
(b) close the Trade on the basis of our then current prices; or
(c) amend the Trade, so that it is as it would have been if the Order was executed in the absence of the Manifest Error.
9.24 We can exercise the above rights even if you have entered into (or refrained from entering into) arrangements with third parties relating to the relevant Trade and even if you may suffer a trading loss as a result.
Please note that the above listed EURCHF trades were placed with Stop Loss orders, however such orders are not guaranteed. For additional support, you might refer to the ETX Capital Terms and Conditions at the following points:
7.11 ( … ) We are not responsible for any additional trading loss suffered due to a Stop Loss Order or a Limit Order not being duly executed because of a systems failure unless as a result of our wilful default or fraud.
12.3 If your Order is a Stop Loss Order then the price we fill your Order at may be the same, or worse than the price you specified in your Stop Loss Order.
As specified in the Glossary of our Terms and Conditions, Stop Loss Order means an instruction to deal in a particular Market if our price in that Market becomes less favourable to you. These orders are commonly used to provide some risk protection, but are not guaranteed.
Please note that a symmetrical approach was adopted, resulting in both winning and losing trades having the price slipped/adjusted.
In conclusion, the review of the above listed disputed trade adjustments revealed no wrong doing on the side of ETX Capital and were as a result of extreme market conditions which were beyond our control. We can confirm that ETX Capital took reasonable efforts to achieve a fair execution for you. This was done in accordance with our Customer Terms and Conditions, our Best Execution Policy and in line with market circumstances and industry practices. We have therefore determined that the outstanding negative balance is due and payable to us.
I hope that this e-mail clarifies your concerns but should you have any additional questions, please do not hesitate to contact us.
- Swissquote: The company sent a letter to clients a few weeks ago asking to cover negative balances. Here is more information (in French): Thanks to a reader of Forex Crunch for the information.
We believe that forex traders should not lose more than they deposit, and that chasing clients for negative balances is set to result in negative publicity and thus a bigger loss than forgiveness.
Is your broker going after you for a negative balance resulting from the SNBomb? Let us know.
Here is a follow up: Negative balances: warning the clients just isn’t enough
And here is the full coverage: