After the Swiss National Bank dropped the bombshell on the
markets last Thursday morning, we have been contacted by
several traders from all over the world in relation to the trade
losses caused by an alleged lack of liquidity in the primary and
secondary money markets.
The move to remove the cap on the Swiss Franc exchange rate with
the Euro at 1.2 clearly came as a shock for the markets, with the
Franc briefly rising as high as 0.85 to the Euro, before dropping
back down to 1.02 by lunchtime. This event seems to corroborate the
speculation to expect the introduction of Quantitative Easing
on 22 January 2015.
It would have been very expensive for the Swiss Franc to
keep printing money to keep the exchange rate at 1.2 with the Euro
when the Euro's value has been reduced as far as it has. So
while the Swiss Economy will take a hit from this, facing deflation
and defaults on loans, it was simply another example of currencies
pricing themselves ahead of an expected event.
Our lawyers in the Forex Litigation team are currently
investigating the scale of the practice of banks' pre-empting,
or front-running, clients' FX orders.
Excel Markets – Negative Equity
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.
The majority of traders in a franc position were on the losing
side and sustained losses amounting to far greater than their
account equity. Excel Markets claims that the interbank market for
francs was illiquid for hours after the event and that no traders
with an open franc position were able to close it for a significant
period of time, at any broker.
We are currently advising clients on Excel Markets'
liability to reimburse the losses incurred on trades that could not
be exited due to the alleged illiquidity in the primary and backup
liquidity providers for hours after the event.
Whilst each case will depend on its own circumstances, the main
issue to consider if whether Excel Markets is liable for the losses
incurred by the clients directly with the liquidity provider
UBS: non execution of stop loss orders
We have also been contacted by clients who have suffered
significant trade losses as a result of a delayed execution of stop
loss orders by UBS, which were designed to limit an investor's
loss on a position in a security.
Stop-loss orders can be an effective tool, but they don't
always work and investors must use them with caution. This is
especially true in volatile markets. These types of order work well
if the stock or market is declining in an orderly manner, but not
if the decline is disorderly or sharp, as it has happened when the
move on the Swiss franc fuelled by the Swiss National Bank's
unexpected policy reversal of capping the Swiss franc against the
euro resulted in rare volatility and illiquidity.
Each case will be heavily fact-dependant but traders may be
entitled to seek an indemnity from UBS for such losses because the
"best endeavours" execution defence may not be applicable
to these circumstances. Investors should read carefully the Order
Execution Policy and seek legal advice from lawyers with experience
in this field. Some banks have best execution policies in
place which may be that the bank will endeavour to get the best
price for their client and it is possible that UBS has breached
its best execution obligations towards its clients.
We are investigating if UBS attempted to trigger client stop
loss orders at a lower figure for the bank's own benefit and to
the potential detriment of clients and/or other market
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories ("EMIR")...
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