After the storm – what role did technology play in the SNB event?

Following the carnage of the SNB event, Nicholas Pratt looks at the technology and the steps that brokers can take to protect themselves and their clients in the future.

On January 15th, the FX market was hit by a seismic event when the Swiss National Bank (SNB) suddenly removed the Euro peg on its currency and sent the FX markets spiralling. The Swiss Franc (CHF) jumped an initial 30% against the Euro before closing the day on a 15% drop. The recriminations have been widespread. First in the firing line was the SNB itself, not least because it had reaffirmed its Euro peg policy the previous week. The excessive spike in CHF led to an extreme withdrawal of liquidity which in turn triggered circuit breakers on many internal models leading to yet more removal of liquidity. The whole chain of market participants were affected from tier one banks to retail investors and from New York (FXCM was forced to take out a $300m loan from US investment bank Jefferies to meet its capital requirement obligations) to New Zealand (where retail FX broker Excel Markets went insolvent). The business models employed by certain brokers, retail brokers especially, have been subject to scrutiny...continued

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