http://www.marketwatch.com/story/danish ... 2015-02-09
Saxo Bank takes hard line on customers' FX losses
When the Swiss National Bank suddenly let its country's currency rocket on Jan. 15, Pawel Jaworski, a welding engineer from Elblag, Poland, was a loser.
Using an online account with Copenhagen-based Saxo Bank A/S, Mr. Jaworski had bet the Swiss franc would fall. He closed his trade with a loss of EUR1,000 ($1,148). "I thought, 'I'm not the winner, but it could be worse,' " said Mr. Jaworski.
It was.
That evening, Mr. Jaworski, 38 years old, checked his account again. Saxo had changed the price at which his trade was executed. He was out an additional EUR2,000. "This is two or three months' wages; this is money that I don't have," he said. The central bank had removed the franc's peg to the euro, allowing the currency to rise, ahead of the European Central Bank's launch of a bond-buying program to boost the eurozone's economic prospects.
Saxo said any losses are its clients' fault. It said its business terms explicitly grant it the right to revise prices after trades have been closed. "I think it was a fair way of dealing with it," said Steen Blaafalk, Saxo's chief financial and risk officer. "Clients that lost money can blame us, or they can blame themselves." Saxo said it doesn't comment on individual clients.
January's swing in the franc was the biggest move in the modern history of developed-market currencies. It jolted money managers, corporate treasurers and central banks around the world. It cut an especially vicious swath through the world of retail foreign-exchange brokers, who let mom-and-pop investors borrow heavily to fund risky bets.
Some brokers have taken huge losses. Others have shut. Some have forgiven loans made to clients. Denmark's Saxo Bank has taken an aggressive approach.
According to the firm's communications reviewed by The Wall Street Journal, client trading records and interviews with customers, Saxo has retroactively repriced some trades and is chasing its own customers for about $100 million in losses.
Repricing of individual trades isn't unknown in the industry, but the altering of large numbers of trades by such a big margin is highly unusual.
Denmark's financial-services regulator last week ordered Saxo Bank to provide details of its handling of Swiss franc trades on Jan. 15. The regulator declined to comment.
The big losses are a consequence of how retail brokers operate. Foreign-exchange markets are relatively placid. A 1% daily move in a currency, commonplace in stocks, is exceptional.
To magnify trades, brokers let clients put up a little cash and borrow the rest from the broker, known as margin trading. That enables an investor to leverage a smaller position into a bigger one. If the holdings rise in value, the margin will magnify gains. Likewise, if the assets decline, the losses are amplified.
In some cases, clients can trade amounts more than 100 times the actual cash they deposit.
Some Saxo customers were able to trade at a 25-to-1 margin ratio, meaning they could make a $10,000 wager on the Swiss currency by using only $400 of their own money. When the franc soared about 30% against the euro in the minutes following the central bank's decision, many customers were clobbered far in excess of the cash they had put up. That is money they now owe the broker.
Many Saxo customers said they can't afford to pay and have been treated unfairly.
One issue is Saxo's decision to recalculate the exchange rate at which losing bets were closed. The bank said the move was made to better reflect the market's chaotic conditions that day.
Wagering about $25 for each $1 put up, Tay Lip Sing, a 44-year-old technology consultant in Singapore, bet the franc would fall against the dollar. He set an automatic limit, called a stop-loss order, to close his trade if losses got too large, according to Mr. Tay and account records reviewed by the Journal. The franc climbed 18% against the dollar soon after the central bank's move.