Last week’s biggest story was the surprise move by the Swiss government to decouple the Swiss Franc from the Euro. As the Swiss government removed the cap of 1.20 Francs to the Euro, the Franc surged in value, in part based on suggestions that the European Union is expected to follow in the footsteps of the US and institute a policy of “quantitative easing.” The Swiss government defended the surprise move, suggesting that announcing the policy beforehand would have only encouraged excessive speculation.
Both institutional and retail investors, as well as currency brokers, were hit with large losses as the markets fluctuated. Many retail investors were particularly hard-hit, and the news was filled with stories of investors who lost huge amounts on leveraged bets on the currency. Both the NFA and the FCA have said they are monitoring foreign currency brokers generally, and in particular are looking into practices at brokers that underwent severe losses. New York-based FXCM already received a $300 million loan from Leucadia to shore up its balance sheet, and UK-based Alpari has stated that it is insolvent. It remains to be seen how regulators will respond but a review of currency margin rules may be forthcoming. For example, it is possible that retail forex dealers will be required to segregate customer funds from their own funds in the same manner as FCMs and swap dealers.