Retail FX market coping admirably after massive shock
All in all I must say that I am very impressed with how the retail FX broking market has coped with the massive shock brought on by the SNB policy change. To the best of my knowledge no brokers have defaulted on client equity and the practice and regulation of client segregated funds would seem to have worked very well indeed. Thinking back a decade ago to what happened to client funds when Refco went broke, I must admit that the market has indeed made tremendous progress. The system has been designed so that extreme losses would be absorbed by the banks and brokers and that is what seems to have happened in this case.
Of course there are some worrying stories of individuals facing much larger personal losses than they had ever envisioned and these sensitive issues will have to be dealt with in a fair and professional manner. Judging by how well the industry has handled the initial shock, I’m hopeful that this issue will also be handled with integrity.
Of particular concern to us professional traders was the unprecedented lack of liquidity when EUR/CHF broke through the floor. I understand the desire of regulators to curb bank proprietary positioning as well as some market making activity but this is a double-edged sword and we felt the brunt of the ‘blind side’ last Thursday. When the proverbial hit the fan, there was a dearth of professional traders/dealers in place to help control the market. Let’s hope that the new breed of professional retail broker, and the trading talent emerging through these platforms, will form the basis for this industry in the future.