The Swiss National Bank’s sudden monetary policy shift left many foreign exchange brokers in a bind, weighing on broker-dealers-related exchange traded fund.
The iShares US Broker-Dealers ETF (NYSEArca: IAI), which tracks U.S. investment banks, discount brokerages and stock exchanges, fell 2.0% Friday and declined 6.9% over the past week. IAI is now testing its 200-day simple moving average.
The sudden surge in the Swiss franc currency wiped out many small-scale investors and brokerages that facilitate their bets, with retail broker Alpari UK filing for insolvency Friday and FXCM Inc (NYSE: FXCM) warning that it may be under-capitalized after clients lost $225 million, Reuters reports. [Swissie Surge Felt Across ETF Landscape]
The move “caused by the SNB’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity,” Alpari said in a statement. “This has resulted in the majority of clients sustaining losses which 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 that it has entered into insolvency.”
FXCM plunged 88% in premarket trading after stating that its clients’ losses threatened the firm’s capital, reports Katrina Bishop for CNBC. FXCM makes up 2.1% of IAI.
After the tumult, investment bank Jefferies, a subsidiary of Leucadia National (NYSE: LUK), was reportedly in talks for a $300 million rescue of FXCM, reports Johanna Bennett for Barron’s. The PowerShares Global Listed Private Equity Portfolio (NYSEArca: PSP) includes a 3.3% tilt toward LUK.
Citigroup (NYSE: C) also reportedly lost $150 million on Forex trades Thursday due to the Swiss move.
Goldman Sachs (NYSE: GS) was also stopped out of one of its key trading ideas for 2015, selling the Swiss franc against the Swedish krona, the Wall Street Journal reported in November. GS makes up 9.4% of IAI.
Due to the SNB’s long-holding cap against the euro currency, many currency traders have maintained bearish bets on further declines in the franc currency.
“Selling puts or vol on the franc was deemed to be SNB guaranteed money for old rope,” Anthony Peters, a broker at Swiss Investment Corp., said in a note. “There will be some very red faces around as it begins to transpire who should not have been playing that game.”
iShares US Broker-Dealers ETF
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