Traders eye tie-ups after Swiss franc shock

Tim Wallace
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Spreadbetting and foreign exchange platforms were scrambling yesterday to shore up their positions in the wake of the Swiss franc’s soaring movements last week.

Bidders are lining up to look through the books of Alpari, a Russian-owned spreadbetter which crashed on Friday as the franc’s movements wiped out some clients and drained the firm’s liquidity. It lost around $45m on the movements.

Although the losses fall to clients, betters trade on margin, effectively being offered credit by Alpari. When losses exceeded the capital placed up front, the platform was caught out.

Alpari initially told customers it had entered insolvency, but later released a second statement insisting other options were still available.

“For the avoidance of any doubt and notwithstanding previous announcements by the company, Alpari (UK) Limited has not entered a formal insolvency process,” Alpari said. “The board of directors are urgently considering all options including a sale.”

Unlike standard investments in currencies, spreadbetting clients can lose more money than they put in. Some highly leveraged clients at Alpari lost out on the franc movements, with losses running far higher than the capital they had in their accounts.

As a result, Alpari was hit by their losses, and got into difficulty. But even clients who were not trading the franc have been hit, as they have been frozen out of their Alpari accounts.

Potential bidders include ETX Capital, SpreadCo, and even FXCM – an exchange which was bailed out by its parent Leucadia on Friday after it too suffered a liquidity squeeze.

“We will look at Alpari, but we won’t bail them out,” SpreadCo’s chief executive Ajay Pabari told City A.M. “If the firm goes into insolvency, we will look at client lists and assets to see if they are appropriately priced.”

However, any such sale would have to take place quickly – if Alpari is closed to traders for any more than a month, he fears clients will have moved on to other platforms, reducing the value of its assets.

Similarly ETX has a history of buying client lists – it snapped up 10,000 clients by acquiring Shelbourne Markets in the middle of 2014. ETX’s chief Andrew Edwards confirmed he is also keen to look at Alpari’s assets.

FXCM is also a contender to buy out Alpari. It was hit by the same crunch, losing $225m. Its parent Leucadia injected $300m, which could allow it to bulk up by buying the firm.

Britain is a major centre for spreadbetting, in part because it does not have tight regulations on margin. In the US, traders have to put capital up front worth at least two per cent of their overall exposures, leveraging themselves by a factor of 50-to-one. In Japan the limit is 25-to-one. In the UK there is no limit, so firms decide how much to offer based on clients’ creditworthiness. Alpari offered up to 500-to-one, but did not have the capital buffers to cope with shock losses.

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